Updated from 9:30 a.m. EST
Securities and Exchange Commission
is getting closer to taking action against several specialist firms that drive trading on the New York Stock Exchange.
Van der Moolen NV
, two of the NYSE's biggest specialist firms, said they've been notified by the SEC that the regulatory agency is considering bringing a civil enforcement action against them over possible trading infractions.
Both companies said they had received a so-called Wells Notice from regulators. The SEC sends a Wells notice to a company or an individual after its staff has completed an investigation and determined that sufficient wrongdoing has occurred to warrant charges to be filed.
The serving of Wells Notices comes as no surprise, since the SEC last summer said it intended to oversee the NYSE's internal investigation of alleged improper trading activities by Van der Moolen, LaBranche and other specialist firms.
The SEC does not comment on the existence or status of such notices.
In early trading, shares of Van der Moolen were down 31 cents, or 3.8%, to $7.90, while LaBranche dropped 22 cents, or 2.4% to $9. Both stocks have taken a beating the past several months in the wake of the furor over former NYSE chairman Richard Grasso's $140 million pay package and the specialist trading scandal.
Van der Moolen, an Anglo-Dutch firm, said it is cooperating with the SEC and will have a chance to respond to the agency's concerns before any possible enforcement action is recommended.
The company also said the NYSE has "restated its intent to bring a formal disciplinary action against VDM Specialists for possible violations of federal securities laws and NYSE rules arising from the same alleged conduct" and is seeking additional information on the matter.
Van Der Moolen previously said the NYSE suggested its allegedly improper trading activity cost customers up to $35 million. The Dutch-based firm disputed that figure, saying it "questioned the accuracy of the NYSE's data," and intimated that it had been led to believe a much smaller fine and potential liability was in the offing.
LaBranche said it expects to be fined and ordered to pay restitution. LaBranche also said the NYSE has told it that improper trading may have cost investors $38.5 million. The NYSE told LaBranche that its investigation had found that the firm enjoyed a "specialist advantage'' that enabled it to "trade ahead" of customer orders in certain situations
On Oct. 16, the NYSE said it intended to take disciplinary action against Van der Moolen and other major specialist firms over allegations of improper trading activity. The other firms include a division of
Speer Leeds & Kellogg unit, and Bear Wagner, which is partially owned by
On Dec. 16, the California Public Employees Retirement System filed a lawsuit against the NYSE, and major specialist firms working on the Big Board, claiming the system by which stocks are bought and sold on the exchange is regularly abused and nothing is ever done about it.
Questions about the specialist trading system have prompted some NYSE critics to pressure the exchange to include the system in its sweeping reform plan.