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Spoofing, Surveillance and Supervision

Jay Biondo, Product Manager - Surveillance at Trading Technologies, co-authored an article along with James Lundy and Nicholas Wendland, both of Drinker Biddle & Reath LLP, reviewing the CFTC's regulations and expanding efforts, 21st century surveillance and supervision, as well as strategic recommendations.

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December 1, 2001

No Ending for NYSE Floor Scandals

By Gregory Bresiger

Wary Lawmakers Are Not Happy With Big Board Clean-Up Is the floor broker scandals of the 1990s finally behind the Big Board? Well, not exactly.

Two key lawmakers say no. They say the New York Stock Exchange has more work to do with its specialist operations. However, the NYSE says it is doing a good job.

The Big Board has made progress in cleaning up the specialists' illegal profit - sharing scandal, but still has work to do, wrote Reps. John Dingell (D-MI.) and John LaFalce (D-N.Y.)

Floor Surveillance

Citing a ten-page report by the Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE), Dingell, in a letter to SEC Chairman Harvey Pitt, wrote that the NYSE "made significant progress in complying with the surveillance and regulation undertakings, including the requirements that NYSE conduct ongoing, continuous surveillance of all floor members."

LaFalce, the ranking minority member on the House Committee on Financial Services, and Dingell, the ranking minority member of the House Committee on Energy and Commerce, also wrote that the Big Board is lacking in ensuring that "members of its regulatory staff are present on the NYSE trading floor during trading hours to surveil for potential trading violations."

The NYSE, commenting on the Dingell letter, said the Big Board has "significantly strengthened its regulatory program." A Big Board spokesman added that, "the report also identified areas to be improved, which have since been addressed."

A spokesman for Dingell said that his letter was "making the point that, while the NYSE has done some good things, they still have a long way to go."

In the wake of the scandal, in which it was found that floor brokers were illegally sharing profits, a consultant's report recommending reforms said that the NYSE should standardize internal procedures across divisions for informal actions like cautionary letters and summary fines.

Sharing Information

It also called for the sharing of information relating to actions taken against floor members. Big Board officials, in response to various recommendations of independent consultants and regulators, have begun a formal biennial examination program for independent floor brokers.

The NYSE has also created a Trading Floor Liason Unit to establish an on-floor regulatory presence. Exchange officials have initiated a required education program, which reviews floor members' obligations and prohibitions under federal securities laws and the Big Board's rules.