CalPERS Piles On The New York Stock Exchange
The California Public Employees' Retirement System (CalPERS) filed suit in the United States District Court Southern District of New York charging the New York Stock Exchange and seven specialist firms with violations of the Securities Exchange Act of 1934. The suit alleges, �(The) defendants failed to disclose that NYSE orders were not being filled at the best available prices, but, in fact, were being manipulated for defendants� benefit in violation of NYSE rules designed to protect public investors�� The 48 page brief further states, �The NYSE knew that its specialist firms were repeatedly violating the Exchange Act and the NYSE�s own rules��

This is the latest in a series of criticisms of the NYSE and the specialist system. In an early October report, the SEC criticized the New York Stock Exchange for not policing the specialists and for ignoring violations that resulted in investors being short changed. Fidelity Investments later issued a statement on reforming the NYSE because �it operates under outdated monopolistic trading rules that create a non-level playing field that favors members on the NYSE floor over investors, both large and small.�

This has all the earmarks of a real donnybrook, regulator style. I�ve long held that when the SEC looks to level the playing field, those that had the advantage end up losing out in a big way. Turn back to the 1960s when the SEC went after the odd-lot brokerage firms � deCoppet & Doremus and Carlysle Jacquelin � and cut their rates for trading odd lots to the point where they eventually went out of business. Fast forward to 1997 when the SEC empowered the electronic communications networks (ECNs). Then trace the fortunes of Instinet ever since. Seems to me that a 100-year old-plus specialist system is more than anachronistic these days.