Five specialist firms will pay $241.8 million in fines and restitution to resolve a yearlong regulatory investigation into improper trading at the
New York Stock Exchange
Securities and Exchange Commission
and the NYSE announced the deal Tuesday morning, following disclosure of most of the details by the firms themselves over the past several months.
The settlement comes out to $87.7 million in penalties and $154 million in restitution. Regulators contend the firms, which drive trading on the NYSE, violated their obligation to give investors the best possible price on a stock.
"When an exchange specialist unlawfully takes advantage of its privileged position by seizing trading opportunities it should leave for public customers, it fundamentally undermines the fair and orderly operation of the exchange auction system,'' said SEC Director of Enforcement Stephen Cutler.
Under the agreement,
Van der Moolen
, the two largest publicly traded specialist firms, will pay the stiffest penalties. LaBranche will cough up $63.5 million, while Van Der Moolen is paying $57.6 million.
Shares of LaBranche and Van Der Moolen have taken a beating over their role in the trading scandal. Investors also hammered the stocks in the aftermath of the public uproar over the hefty pay package the NYSE awarded former Big Board Chairman Richard Grasso.
Wall Street appears to have come to the conclusion that specialist companies won't be as profitable in the future as the Big Board is pushed by regulators (and public opinion) to allow greater opportunity for trading stocks on less labor-intensive electronic trading networks. In early trading, shares of both LaBranche and Van Der Moolen rose on news that the settlement was a done deal. LaBranche was up 30 cents, or 2.7%, to $11.29, while Van Der Moolen's stock rose 22 cents or 2.5%, to $9.13.
The other firms settling with regulators are
Spear Leeds & Kellogg,
Fleet Specialists and
, which is majority owned by
. In the deal, Fleet will pay $59 million, Spear Leeds will pay $45.2 million and Bear Wagner will pay $16.2 million.
As is customary in regulatory settlements, the five firms neither admitted nor denied the allegations of improper trading.
The specialist firms, however, still face other legal action. In December, the
California Public Employees Retirement System
filed a lawsuit against the five firms and the NYSE over the alleged trading infractions. Calpers claims the system by which stocks are bought and sold on the exchange is regularly abused and nothing is ever done about it.