Two of the New York Stock Exchange’s largest floor-trading firms said on Friday that U.S. regulators might file civil charges against them over potential trading violations.
LaBranche & Co. LLC, the NYSE’s largest share dealer and a subsidiary of LaBranche & Co., said on Friday it had received a “Wells notice” -- which lets a firm or individual know that the Securities and Exchange Commission is considering taking action against it.
Dutch market maker Van der Moolen Holding also said it had received a similar notice from the SEC.
Both firms also disclosed that the NYSE had indicated its intention to formally discipline them for possible violations of NYSE rules and securities regulations.
An NYSE spokesman confirmed that the exchange was pursuing disciplinary action against LaBranche and Van der Moolen but declined to comment on whether other specialist firms had been notified as well.
The exchange had previously said it would seek fines totaling about $150 million against five specialist firms for improper trading that could have cost clients millions of dollars.
Specialists manage the auction of shares on the exchange floor. During periods of market volatility, they use their own capital to dampen dramatic swings in share prices to maintain a fair and orderly market.
But the firms have operated under increased scrutiny since last year, when the NYSE and federal regulators began probing whether specialists had executed their own trades before dealing with customer orders and had intervened in trades in which buyers and sellers should have been matched.
Aside from LaBranche and Van der Moolen, the three other largest firms on the NYSE floor are Goldman Sachs Group Inc.’s Spear, Leeds & Kellogg; FleetBoston Financial Corp.’s Fleet Specialist; and Bear Wagner Specialists LLC, partly owned by Bear Stearns Cos. Inc.
Spokesmen at Fleet did not immediately respond to calls seeking comment. Representatives at Goldman Sachs and Bear Stearns declined to discuss the matter.
Under pressure
LaBranche said in a statement that it was notified by the SEC “that the staff is considering recommending that the SEC bring a civil enforcement action against LaBranche.”
Michael Bradley, an attorney at Jones Day who is representing LaBranche, said the SEC notice “gives us the opportunity to present our side of the story.” He added that LaBranche and its legal representatives “have been in discussions with regulators, and those are not finished yet.”
Though based in Amsterdam, Van der Moolen makes the bulk of its income in the United States. The firm said it would continue to provide information to the SEC and NYSE and planned to cooperate with their investigations.