SEC NOW PROBING OPTIONS MARKETS
By JENNY ANDERSON
January 28, 2004 -- The Securities and Exchange Commission is extending its probe of improper exchange-floor trading beyond the New York Stock Exchange and into the nation's leading options exchanges, The Post has learned.
The SEC's Office of Compliance and Inspections (OCIE) has begun to request extensive data to examine how the major options exchanges - including the Chicago Board Options Exchange, the American Stock Exchange, the Philadelphia Stock Exchange and the Pacific Exchange - monitor their floor traders, sources said.
The SEC will look at five years' worth of trading data, searching for examples of floor traders placing orders 'in between' or 'in front of ' orders they should have executed automatically.
The traders, called specialists, are supposed to manage orderly trading in stocks and options.
The SEC also discovered the practices - called "interpositioning" and "trading ahead" - at the NYSE during the agency's year-long investigation.
The SEC appears to be examining how well-equipped the exchanges are to monitor such practices and how willing they have been to punish wrongdoers, say people familiar with the requests for information.
OCIE head Lori Richards declined to comment.
While some of the exchanges have received the request for information, others, including the International Securities Exchange and the Pacific Exchange, have not received anything, spokesmen for those exchanges said.
Spokesmen for the CBOE and the Philadelphia Stock Exchange declined to comment. Calls to an Amex official were not returned
News of the probe is a blow to all the exchanges, already struggling with industry consolidation, competing trading models and narrowing profit margins.
News of the SEC probe comes on top of a lawsuit filed last week by a group of "direct access" traders - traders who can trade directly onto an exchange rather than through a broker - accusing four major exchanges and 35 brokers or dealers of violations of securities and antitrust laws.
"The [defendants] were targeting the traders to cause injury to them by not filling orders," said Andrew Friedman, an attorney from law firm Wechsler Harwood who is representing the plaintiffs.
Friedman cited a June 16, 2003, SEC report concerning the Amex's surveillance, investigative and disciplinary programs related to options-order handling, which revealed that, during one particular week, when the specialists "were not busy and were not in the process of updating the quote," they only filled 62.5 percent of direct-access orders.
"Both the factual and legal claims made in [the] complaint against CBOE are without merit," said spokesman Gary Compton. "CBOE will vigorously defend itself against these baseless claims." The CBOE is one of the defendants cited in the case. |
