At Least Five Firms Face SEC, NYSE Action
Fri January 23, 2004 04:16 PM ET
By Javier David

NEW YORK (Reuters) - At least five of the largest floor-trading firms that operate on the New York Stock Exchange face possible action by federal regulators and the Big Board, sources familiar with the matter said on Friday.

Earlier, LaBranche & Co. (LAB.N: Quote, Profile, Research) and Van der Moolen Holding (VDMN.AS: Quote, Profile, Research) (VDM.N: Quote, Profile, Research) -- two of the NYSE's largest floor trading firms -- announced that the Securities and Exchange Commission is considering filing civil charges. In addition, the exchange is bringing disciplinary measures against both.

FleetBoston Financial Corp.'s (FBF.N: Quote, Profile, Research) Fleet Specialist unit also confirmed on Friday that it received an SEC notice and faced pending disciplinary action by the NYSE.

But sources close to the investigations said that, at a minimum, the five largest floor traders have been notified that potential action could be taken against them by the SEC and the NYSE.

Earlier, an NYSE spokesman 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 specific shares allocated to them. During periods of market volatility, they use their own capital to dampen dramatic swings in share prices and add liquidity 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, Fleet and Van der Moolen, the two other largest specialist firms on the NYSE floor are Goldman Sachs Group Inc.'s (GS.N: Quote, Profile, Research) Spear, Leeds & Kellogg, and Bear Wagner Specialists LLC, partly owned by Bear Stearns Cos. Inc. (BSC.N: Quote, Profile, Research) .

Representatives at Goldman Sachs and Bear Stearns declined to discuss the matter.

UNDER PRESSURE

LaBranche -- the NYSE's largest specialist firm -- 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 most 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.

Charles Salmans, a spokesman for Fleet Specialists, said the firm was in discussion with staffs of both organizations to try to resolve the issues raised by these notices.

The investigation has left the specialists adrift in a sea of uncertainty. But in a possible indication of the market's relief, the reaction of share prices of LaBranche, Fleet and Van der Moolen was largely muted.

Shares of LaBranche were up 89 cents, or 9.7 percent, at $10.10 at the close of NYSE trading, after dipping as low as $8.92 earlier, while shares of Van der Moolen were unchanged at $8.21, also on the New York Stock Exchange. In Amsterdam, Van der Moolen shares fell 4.13 percent.

FleetBoston stock fell 24 cents, 0.54 percent, to $44.27 in NYSE trading. (Additional reporting by Brendan Intindola and Greg Cresci)
Source: Reuters