Friday, March 9, 2018

New York Stock Exchange fined for market design flaws

The WSJ has the story:
NYSE to Pay $14 Million Over 2015 Trading Malfunctions
Settlement covers series of glitches that disrupted trading on three occasions that year

"The New York Stock Exchange agreed Tuesday to pay $14 million to settle regulatory investigations into a series of market malfunctions and technical errors that disrupted trading on three occasions in 2015.

"The settlement represents the first case in which the Securities and Exchange Commission accused a stock exchange of violating rules established to prevent outages of critical market infrastructure. The SEC also faulted NYSE for using unapproved “price collars” to damp price swings during a wild trading session on Aug. 24, 2015, which had the unintended effect of exacerbating volatility.
"Chaotic trading on the morning of Aug. 24, 2015, exposed flaws in the way U.S. stocks and exchange-traded funds trade and prompted criticism of the NYSE’s unusual market design, in which human traders on an old-fashioned trading floor coexist with electronic trading. Critics of NYSE’s model said human traders, given discretion to set the opening price of stocks, made things worse.

"The many price swings that morning triggered nearly 1,300 halts of stocks and ETFs. Many shares didn’t formally open for trading until 9:45 a.m. or, in some cases, after 10 a.m., as the NYSE’s market makers struggled to find valid starting prices for stocks.

"During the upheaval, dozens of ETFs traded at sharp discounts to the sum of their holdings, worsening losses for fundholders who sold during the panic."

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