It’s no wonder so many on Main Street believe the stock market is rigged.
Adding to the crisis of confidence on Wall Street, the New York Stock Exchange admitted yesterday that it gave select clients a major trading advantage over average investors.
The Big Board agreed to cough up $5 million and make a number of fixes to settle charges by the Securities and Exchange Commission that it delivered precious trading data to paying clients ahead of everyone else.
While paltry in terms of dollars, the fine marks the first time a major exchange has been slapped with a monetary penalty by Wall Street’s biggest watchdog.
The Big Board’s “compliance failures” — the latest in a string of trading snafus that includes the May 2010 “flash crash” and Facebook’s glitch-filled debut — seem to confirm suspicions that Wall Street is far from a level playing field.
“Whether it’s unintentional or not, either way it’s unforgivable and inexcusable,” said Joseph Saluzzi, partner of brokerage firm Themis Trading. “This is a great example of how the game is rigged.”
The SEC alleges that as far back as 2008 and up until mid-2010, the Big Board conferred an “improper” head start to paying clients of its proprietary market feed.
Although the lead amounted to just a fraction of a second in some cases, it was a huge advantage for sophisticated traders who employ lightning-fast computers and complex algorithms to execute trades in the blink of an eye.
“Our rules require exchanges to distribute information on quotes and trades to the consolidated data processors on terms that are ‘fair and reasonable’ and ‘not unreasonably discriminatory,’” said Robert Cook, the SEC’s head of trading and markets.
Both the NYSE and the SEC blamed the long-running problem on tech gaffes rather than favoritism.
“The timing differentials stemmed from technology issues, not from intentional wrongdoing by the exchange or any of its personnel,” NYSE CEO Duncan Niederauer said in a statement, adding that the tech bug has been fixed.
That comes as small comfort to many. The problems with the NYSE’s trading systems were on clear display during the flash crash, when the Dow Jones industrial average lost 1,000 points in a matter of minutes.
On that frightening day, most investors saw trading delays of up to 10 seconds, while those who used proprietary platforms filled orders in milliseconds, according to the SEC.
Meanwhile, market observers predict more action on the matter from the feds. “We’re just scratching the surface with the problems with the exchanges,” said Eric Hunsader, the CEO of Nanex, a trading technology company.