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SEC says NYSE didn't control floor traders

The U.S. Securities and Exchange Commission criticized the New York Stock Exchange for failing to control leading floor-trading firms, known as specialists, resulting in losses to investors, the Wall Street Journal reported, citing a confidential report.

The report, dated Oct. 10, said about 2.2-billion shares were improperly traded in the past three years, costing investors more than $150-million, the newspaper said. The SEC blamed the exchange for failing to police members who placed their own trades before those of their customers, the paper said.

The world's biggest stock exchange is already under scrutiny over former chairman Richard Grasso's $140-million pay package. Complaints about Grasso's compensation led to his departure in September, and raised questions about the NYSE's ability to both operate and regulate the exchange.

"Pressure is growing on those bodies to separate," said John Tattersall, a partner in the financial services division at PricewaterhouseCoopers in London. "Nowadays transparency and being seen to avoid conflict is everything."

According to the Wall Street Journal article Monday, the 40-page report, produced by the regulator's office of compliance, inspections and examinations, complained of "serious deficiencies" in the NYSE's oversight of floor trading. The SEC's enforcement division is deciding whether to bring an action for failure to fulfill self-regulatory duties, the newspaper said, citing people familiar with the matter.

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