Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, September 5, 2007

SEC Settles Charges Against Boston Exchange for Specialist Violations

The SEC settled an enforcement action against the Boston Stock Exchange and its former president James B. Crofwell for failing to enforce Exchange rules to prevent specialists from trading for their own accounts ahead of marketable customer orders.  The Commission's Order against the Exchange and Crofwell finds that the Exchange's failure allowed hundreds of violations per day to go undetected even after the Commission staff had repeatedly warned the Exchange it needed to improve its surveillance systems.  According to the Commission's Order, from 1999 to 2004, the Exchange and Crofwell failed to enforce Exchange rules that prohibited Exchange dealer specialist firms from trading securities for their own benefit at the expense of their customers. Without admitting or denying the findings in the Commission's Order, the Exchange and Crofwell each consented to a censure and an order to cease and desist from future violations of Section 19(g) of the Exchange Act, which requires exchanges to enforce rules governing member firms. The Exchange further agreed to comply with specific undertakings contained in the Order, including expenditure of at least $1 million to retain a third-party consultant to conduct comprehensive audits of the Exchange's surveillance, examination, investigation and disciplinary programs relating to trading, and implementation of the consultant's recommendations.

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