Phlx Agrees to Settlement with SEC, Including Cease and Desist Order, Floor Member and Regulatory Staff Annual Training, and Regulatory Auditor
Washington, D.C., June 1, 2006 – LAWFUEL – Prress release service – The Securities and Exchange Commission today issued a settled cease and desist order against the Philadelphia Stock Exchange (Phlx) for its failure to enforce certain trading and order handling rule violations by its specialists from April 1999 through January 2002.
The Order found that Phlx had several deficiencies in its surveillance programs to assure compliance with its own rules and the federal securities laws in both its options and equities markets. Specifically, the Commission found that Phlx had failed, in some instances, to develop programs to detect violations or, in other instances, that the programs in place were not adequate to detect such violations. For example, certain surveillance reports used to identify potential violations improperly excluded categories of transactions from review, while other reports inappropriately limited the period of review. The regulatory failures in connection with the options market had been previously addressed by the Commission in an order issued in September 2000, In the Matter of Certain Activities of Options Exchanges, Rel. 34-43268, Sept. 11, 2000. Pursuant to that order Phlx undertook to enhance and improve its surveillance, investigative and enforcement processes with respect to options order handling rules. Despite enhancements implemented by Phlx, significant inadequacies in Phlx’s options surveillance programs persisted. The Commission also found that Phlx had similar deficiencies in its surveillance for order handling violations in it equities market and that Phlx inadequately surveiled for violations of equities trading rules relating to short sales, front-running, marking the close, and wash trades. Because of this inadequate surveillance, Phlx failed to detect violations by specialists.
Pursuant to the Commission’s Order Phlx has undertaken to retain in 2006 and 2008 a third party auditor to conduct a comprehensive audit of Phlx’s surveillance, examination, investigation, and disciplinary programs relating to trading applicable to all floor members. Phlx has also undertaken to implement annual training program for all floor members and certain members of Phlx’s regulatory staff.
Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “It is essential that self-regulatory organizations vigorously enforce their own rules and the federal securities laws. This settlement will help strengthen Phlx’s regulatory function.”
Scott Friestad, an Associate Director of Enforcement, added, “The regulatory audit called for by the settlement will assist Phlx in making improvements to its surveillance program and help prevent misconduct from going undetected again.”
Based on the above, the SEC ordered Phlx to cease and desist from committing or causing any violations of, and committing or causing any future violations of, Section 19(g) of the Exchange Act. Phlx consented to the issuance of the Order without admitting or denying any of the findings.