NYSE inquiry targets floor traders
By MarketWatch
Last Update: 9:12 AM ET Feb. 7, 2005
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NEW YORK (CBS.MW) -- Federal prosecutors are investigation whether individual floor traders at the New York Stock Exchange cheated customers by employing illegal trading practices, the New York Times reported Monday.
The paper, citing someone who has been briefed on the action, said the investigation is part of a broader inquiry into of the exchange itself.
The report said prosecutors are examining two particular practices: executing proprietary orders before customer orders, and getting involved in trades that should be carried out automatically with no intervention.
According to published reports last month, The Securities and Exchange Commission is preparing to charge the New York Stock Exchange with failing to police its specialist firms and ignoring violations that cheated investors out of millions of dollars.
And in November 2004, a number of specialists at the New York Stock Exchange resigned in the wake of the federal investigation into whether they improperly profited at the expense of investors.
In March 2004, five specialist firms at the New York Stock Exchange reached a $241.8 million settlement with the Securities and Exchange Commission over charges that they traded ahead of customer orders for their own accounts -- a practice known as front running.
The firms settling Tuesday with the SEC and NYSE included Bear Wagner Specialists, a unit of Bear Stearns (BSC: news, chart, profile) ; Fleet Specialist, a unit of the former FleetBoston Financial, now part of Bank of America, ; LaBranche (LAB: news, chart, profile) ; Spear Leeds & Kellogg, a unit of Goldman Sachs (GS: news, chart, profile) ; and Van der Moolen Specialists USA (VDM: news, chart, profile) .
None of the firms, the SEC said, had proper oversight procedures in place.
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