Floor-trading firms at the New York Stock Exchange improperly dealt about 2.2 billion shares of stock over the past three years, according to a report by the Securities and Exchange Commission.
The confindential report, obtained by The Wall Street Journal and reported in the paper’s Monday editions, accuses the NYSE of failing to maintain an effective self-regulatory structure, costing customers $155 million.
“The NYSE’s disciplinary program... does not adequately discipline or deter violative conduct,” according to the report.
The improperly traded stock represents less than 1 percent of the stock traded at the NYSE over the past three years but was still cause for swift reform, according to the SEC.
The report, dated Oct. 10, comes at a time when the NYSE is navigating a series of internal probes and management upheavals.
In September, former NYSE chairman Dick Grasso resigned amid outrage over his hefty $188 million pay package. And last month, the exchange announced that it would discipline and seek substantial fines against five floor-trading firms as part of a widening probe into improper trading.
The 211-year-old NYSE is one of the last exchanges in the world that uses human traders, rather than electronic systems, to handle stock.
Among the specific transgressions attributed to floor-trading firms in the SEC report:
Some employees of firms “traded ahead” of customers, buying stock for themselves before they bought for their clients and giving themselves better prices, resulting in a loss of about $128 million to customers;
Employees delayed electronic orders received through the NYSE’s Designated Order Turnaround system from reaching the trading floor, allowing other orders to be filled first.
The stock exchange announced last week that it would propose a package of governance changes this week, including splitting the board to make it more accountable to the public.
But it was not immediately clear whether those changes were inspired by the SEC’s findings. Neither the stock exchange nor the SEC would comment on the report to the Journal.