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Navigating Cybersecurity on a Stretch of "Regulatory Rapids"

In this shared commentary, Aplomb Strategies writes that when considering a firm’s governance structure, a holistic approach makes the most sense.

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January 1, 2002

Never Again, Spear Is Warned

By Peter Chapman

After being slapped with the largest fine in the history of the American Stock Exchange, Spear, Leeds & Kellogg is scrambling to clean up its floor act.

On top of a $1 million judgement, Spear, Leeds has been ordered by the Amex to conduct a review of the supervision of its clearance and specialist operations on the floor. It must also adopt supervisory procedures for certain business units.

Spear, Leeds is paying the price for inadequately monitoring its head of clearance operations at the exchange in the mid-90s, Pasquale Schettino.

The rogue trader credited profitable, but "unlawful" stock and options trades to the account of a Spear, Leeds customer. Schettino, himself, was fined $100,000 in 1999 and barred from the industry.

The Amex apparently decided that Spear, Leeds, the largest stock and options specialist at the Amex, did nothing to stop him.

Notably, Spear, Leeds failed to investigate Schettino's activities and did not maintain or enforce any written procedures. The bourse is miffed that Spear, Leeds failed to heed its advice to restrict Schettino's access to the floor during its investigation.

Goldman Sachs, Spear, Leeds' parent, states the two groups did cooperate with the Amex in its investigation. A spokesperson for Goldman, however, declined to discuss its time frame for complying with the Amex edict.