The Demise Of The New York Stock Exchange

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Contrary to any concept of rationality, the NYSE does not have to investigate a complaint about illegal trading. It can ignore the complaint.

[Policing Wall Street]

I recently attended a financial conference in Manhattan where I spoke to some old acquaintances from the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). Their view? The New York Stock Exchange will be dead in a few years. 

Not only is the technology of the New York Stock Exchange outdated, but many trading professionals remember how they were maltreated by specialists on the floor of the New York Stock Exchange and have migrated to electronic exchanges such as BATS.

Before it became a publicly traded corporation the NYSE existed not for the good of the public, but for the good of its members. Illegal trading was not only tolerated, but encouraged-so that NYSE members could earn more money.

In 1999 the Oakford scandal story, involving illegal trading at the stock exchange broke.  This resulted in the indictment of nine NYSE floor brokers, who pleaded guilty to illegal trading.  But illegal trading at the NYSE did not stop.   

An August 1999 BusinessWeek article, “A Street Scandal That May Not Die,” which exposed the true extent of NYSE floor brokers illegally trading for Oakford Corp., said that there were 300 NYSE floor brokers who had traded illegally for their personal accounts ahead of public customer orders. 

I myself saw profit and loss statements for approximately 100 NYSE floor brokers, who had traded illegally for Oakford.  Some of these NYSE floor brokers illegally earned in excess of $200,000 per month by trading for Oakford.  Such was the case of the NYSE floor broker, who illegally traded IBM for his personal account at Oakford, while trading ahead of public orders that he was supposed to be executing.  And even more outrageous taxes were not paid on this unreported income.

But illegal trading continued to flourish.  As recently as 2007 I wrote to the NYSE about an illegal trading scheme that netted the perpetrator in excess of $30 million per annum.  The individual was able to perpetrate this illegal trading scam by having NYSE floor brokers trade for his account while he was sending them orders to execute for public customers. 

How did I learn about this illegal trading? Easy.  I met one of the NYSE floor brokers, who was trading for this individual and he told me that he had been cheated on his share of the illegal profits.  This NYSE floor broker even told me how the orders were disguised.

Contrary to any concept of rationality, the NYSE does not have to investigate a complaint about illegal trading.  It can ignore the complaint.  Why?  Because if the individual reporting the crime did not suffer any loss-in other words I detailed the illegal trading but since I did not suffer any economic harm- the NYSE was not obliged to investigate these violations of the Securities Exchange Act of 1934.

So while the SEC might talk about unfair methods of flash trading and rapid trading, the SEC continues to permit violations of federal securities laws at the NYSE.

Now that there are alternative electronic exchanges, many investors are trading on these alternative platforms. This has impacted the financial profitability of the NYSE. 

Last year the NYSE lost $740 million.


Manfredonia who was a Wall Street trader in the 1980s was driven from the Street when he started exposing corruption. He’s now on a mission to clean up Wall Street. Send any tips to Edward@blackstarnews.com


Post your comments directly online or submit them to milton@blackstarnews.com

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