BUSINESS WEEK interviewed traders, floor brokers, specialists, and clerks, as well as current and
former Amex officials and current and former federal and local regulators. We also reviewed thousands
of pages of documents, most not publicly available. What emerged was a multifaceted, often complex
story with but one common theme: The American Stock Exchange has failed to adequately police itself.
It is a failing that seems most vividly apparent when its most powerful and influential firms and
personalities are involved.
The key findings:
-- Amex options specialists and traders are said to regularly engage in price-fixing. The aim is to keep
as wide as possible the ''spread'' between the bid--what the public can get to sell an option--and the
ask, which is what the public must pay to buy an option. Because the prices are allegedly skewed to
favor the denizens of the Amex floor, the public is hurt each year, BUSINESS WEEK estimates, to the
tune of $150 million. The Amex denies knowledge of improper options pricing (page 99).
-- Amex sources maintain that a host of other trading improprieties are commonplace. Chief among
these are what they describe as illegal trading by floor brokers and specialists, similar to the
accusations in the indictments of the NYSE floor brokers. But Amex officials say that there is no broad
SEC inquiry--of the kind just announced at the NYSE--into how the Amex regulates its floor
personnel.
-- With the SEC's tacit concurrence, the Amex routinely doles out light punishment when it uncovers
wrongdoing on the floor. In contrast to its merger partners at NASDAQ, who work closely with the
SEC and federal and state prosecutors, the Amex deals with most allegations of even serious
wrongdoing ''in the family'' (page 108).
-- The American Stock Exchange's scandal-free reputation is a mirage. Since 1995, the Amex floor has
been rocked by a major floor-trading scandal involving alleged improper trading by Pasquale
Schettino, a top official of its most powerful specialist firm, Spear, Leads & Kellogg. The Amex
apparently did not follow up on testimony indicating knowledge and approval of Schettino's activities
by top Spear officials--including its former senior partner, Peter R. Kellogg. Spear and Kellogg, who
were not charged by the Amex, declined to comment, as did Schettino's lawyer (page 102). |
