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Chicago Stock Exchange to pay $300,000 fine

Staff Chicago Business Journal

Chicago Stock Exchange has agreed to pay $300,000 to settle regulatory claims that it violated market rules aimed at ensuring investors get the best prices.

Some brokers were able to abuse a component of the exchange’s order-matching system to obtain better prices at the expense of other investors, Bloomberg reported,[1] citing an order from the Securities and Exchange Commission.

The SEC said from 2006 to 2010, the exchange failed to implement policies meant to detect and prevent these types of violations and also didn’t implement surveillance procedures to monitor brokers’ use of its system from 2006 to 2008, reports Bloomberg.

“The validated cross system permitted institutional brokers to execute transactions at stale prices within previously captured NBBO,” or national best bid and offer, the SEC said in the order[2]. “The system was thus not reasonably designed to prevent validated cross trades from trading through the NBBO prevailing at the time of execution.”

The Chicago Stock Exchange, which only accounts for about 0.4 percent of U.S. equities trading volume, is the fourth exchange to be fined by the SEC in less than a year, as part of efforts to crack down technology problems and rule violations, according to the Wall Street Journal[3]. By volume, the CHX, owned by parent CHX Holdings Inc., is the 11th-largest U.S. stock exchange.

The exchange agreed to settle the charges without admitting or denying any wrongdoing.

"We're very happy to come to a resolution and put it behind us," Chicago Stock Exchange Chief Executive David Herron[4] told Reuters[5].

Herron added that the exchange decommissioned the validated cross system program in December 2010, before the SEC starting investigating the matter.

"This was one small part of our functionality and has long been disabled and is no longer an offering of the CHX," Herron said.

References

  1. ^ Bloomberg reported, (www.bloomberg.com)
  2. ^ order (www.sec.gov)
  3. ^ according to the Wall Street Journal (stream.wsj.com)
  4. ^ David Herron (feeds.bizjournals.com)
  5. ^ told Reuters (www.reuters.com)
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