NYSE Informs Specialist Firms Of Planned Disciplinary Action - Systems Software Being Implemented To Deter Improper Trading

The New York Stock Exchange Enforcement Division has informed five specialist firms that it has determined to bring disciplinary action against them. The actions will allege failure to comply with fundamental Exchange auction market rules and policies and applicable securities regulations during a three-year period from Jan. 1, 2000 through Dec. 31, 2002. The Exchange will also seek substantial fines and improvements in the self-monitoring and compliance practices of specialist firms, as well as reimbursement of potential investor losses.

Additionally, the Exchange announced that it is implementing systems software at the point-of-sale to deter similar conduct in the future and to further enhance the Exchange's market surveillance efforts.

The alleged misconduct involved situations in which specialists improperly traded ahead of customer orders in certain situations. In some situations the specialist had customer buy and sell orders on the electronic order book that should have been crossed and executed with or against each other, but instead the specialist traded for the firm account with each order to the disadvantage of the customers. In other situations, the electronic order book contained a customer order that could have been executed against a second order, but instead the specialist traded for the firm account with the second order, to the disadvantage of the customer order already on the book.

"We have notified the specialist firms and the Securities and Exchange Commission of the actions that we are prepared to take," said Edward A. Kwalwasser, Group Executive Vice President, Regulation. "While our investigation in coordination with the SEC is not yet complete, our Market Surveillance and Enforcement Divisions are working to bring this matter to a responsible and expeditious close."