Exchanges Under Fire As SEC Levies Record Fines

When the SEC hit the NYSE (NYSE:NYX) with a $5 million fine last year, it proved to be the opening salvo in its regulatory efforts with exchanges. With Nasdaq OMX (NASDAQ:NDAQ) about to settle for double that amount and CBOE (NASDAQ:CBOE) on deck, there is no end in sight to regulators’ campaign to require better oversight to exchanges across the country.

The Wall Street Journal reported that Nasdaq is about to settle for the price of $10 million over the Facebook (NASDAQ:FB) IPO debacle last year, which would be the highest fine yet. The now notorious failure of Nasdaq to process orders for Facebook stock amounted to a huge embarrassment on such a high-profile offering. Technical issues were the reason behind the delayed opening and the failure to process numerous orders, some of which were never filled. The SEC is taking $10 million after reportedly seeking $30 million from Nasdaq.

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The Chicago Board of Options Exchange is expecting to be clubbed with a fine in the same neighborhood as Nasdaq’s following its three-hour blackout in late April. Software issues were the culprit that day at the CBOE, yet the excuse is not considered valid by any party concerned. Filings show the CBOE is earmarking $10 million for the SEC as details of its fine are released. The SEC is holding exchanges accountable for errors of all kinds as high-frequency trading becomes the norm…

Luis Aguilar, the SEC’s Commissioner, has pointed out the need for “robust oversight” among exchanges that regulate themselves. After the NYSE failed in its compliance obligations in 2012, Aguilar saw the need for a line to be drawn in the sand. “Obviously, these events undercut investor confidence,” he said in a speech earlier this month.

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As cyber attacks and other tech issues confront the major exchanges, large investments in security and performance technology will be necessary in order to avoid future fines. The SEC is going out of its way to show there is no excuse for failures in performance and lackluster regulatory policies. Ideally, the SEC’s efforts will guarantee a level playing field for investors on every exchange floor.

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