The Securities and Exchange Commission fined the New York Stock Exchange $4.5 million for flouting its own trading rules, just two day after the watchdog’s chief told lawmakers that “the markets are not rigged.”
The SEC charged the stock exchange and a brokerage, which are now owned by IntercontinentalExchange Inc., for violations between 2008 and 2012.
“The NYSE exchanges repeatedly engaged in business practices that either violated exchange rules or required a rule when the exchanges had none in effect,” the SEC said in a statement on Wednesday.
The NYSE, along with broker Archipelago Securities, agreed to settle the charges without admitting or denying guilt.
One of the charges involved a rule allowing for “co-location.” That’s when high-frequency traders place their computers close to an exchange’s mainframe, cutting down on the time to trade by a few milliseconds, and giving them an edge. There are about 400 milliseconds in the blink of an eye.
That practice was exposed in Michael Lewis’ blockbuster book “Flash Boys: A Wall Street Revolt.” Lewis alleges that the markets are rigged because super-fast computer programs can essentially commit surveillance on a market and raise the price by a penny or two. Those pennies can add up to billions of dollars a year.
SEC Chair Mary Jo White on Tuesday rejected claims that investors are getting fleeced by high-speed traders. She told a House panel on Tuesday that “US markets are the strongest and most reliable in the world.”
Lewis’ book prompted the FBI, the US and New York attorneys general, and the SEC to investigate high-frequency trading.
Other violations include not following rules for trades, block orders, and distributing information earlier than they should have, the release says.
Eric Ryan, a spokesman for NYSE, declined to comment.