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- Automated Trading Desk Specialists, LLC
- Chicago Securities, LP
- E*Trade Capital Markets Execution Services, LLC
- KWS Associates, Inc.
- Melvin Specialists, LLC (now operating under the name LaSalle Capital, LLC)
- Rock Island Equity Market Services, Inc., and
- SJS Securities, Inc.
Without admitting or denying the findings of the Orders, the seven firms consented to the entry of the Orders, which made certain factual findings and imposed sanctions. Under the terms of the settlement agreements, the seven specialist firms were fined a total of $473,700. Additionally, the specialists firms that currently operate on the Exchange were required to expend an additional $178,994 to improve their respective supervisory and compliance systems and procedures.
The Orders found that from January of 2002 through December 31, 2004 the firms named above committed numerous violations of one, several or all of the following Exchange's trading rules and related federal securities rules: the Exchange's BEST Rule; Primary Market Protection Rule; Block Trade-Through Rule; Limit Order Display Rule; Short Sale Marking and Tick Test Rules; and Firm Quote Rule. The Exchange's BEST, Primary Market Protection and Block Trade-Through Rules are designed to guarantee that customers that send their orders to the Exchange receive at least as good an execution as they would have received had they sent their orders to the primary market or best-quoted market for execution. The Limit Order Display, Short Sale and Firm Quote Rules help ensure the maintenance of fair, orderly and operationally efficient markets by increasing the transparency of customer buying and selling orders thereby improving the opportunities for the best execution of customer orders and by assuring that specialists honor the quotes that they display in the market. Additionally, the Short Sale Rule is intended to prevent the sale of securities for the purpose of accelerating a decline in the price of such security.
David C. Whitcomb, Jr., the Chief Regulatory Officer for the Exchange, stated, "Even while the Exchange is actively working on a transition to a highly automated marketplace that would preclude such violations, it is important that we take effective measures to deter misconduct in the interim period. The Exchange will continue to vigorously enforce any violations of these important trading rules. The fact that active specialist firms are being required to expend additional monies to improve their internal compliance programs supports these objectives."
David A. Herron, the Chief Executive Officer of the Exchange, added, "Continued regulation and the prevention of future violations is a top priority for the Exchange. We want to make sure that participants on our trading floor understand that this Exchange is serious about enforcing regulatory compliance."
As part of the settlement, each of the firms that currently actively trades as a CHX specialist also agreed to implement several undertakings, including: (1) to expend a portion of their fined amount toward further improving the firm's compliance policies, procedures, personnel and systems to further prevent, detect and address potential violations of the Exchange and federal securities rules; (2) review no less frequently than annually, the adequacy of the design and implementation program relating to its operations on the Exchange trading facilities; (3) continue to establish and implement regular training and continued education programs for all the firms' employees trading on or through the facilities of the Exchange, and (4) submit within one year of the date of each order an affidavit and supporting documentation attesting to the implementation and completion of the undertakings specified in the orders.
