Exchanges Gone Wild

What’s going on at the nations stock exchanges? Two recent lapses in controls have us wondering if the exchanges are really in control or if they have been cutting corners to increase their profits.

First, there was the “public administrative and cease-and-desist proceedings ” issued last week by the SEC against the Direct Edge stock exchange Read SEC Cease and Desist here .  The SEC charged that Direct Edge traded out of positions that they took for a few clients due to a technical error last year. One problem was that Direct Edge never got approval to use an error account. The SEC said:

“The assumption of positions to facilitate the resolution of overfilled or error positions was not permitted under the rules of the Exchanges, and the Exchanges failed to file proposed rule amendments permitting them to assume member positions. The use of the DE Route error account to engage in trading activity was not permitted by the Exchanges’ rules.”

But an even bigger problem was that Direct Edge “engaged in short selling activity” and did not mark its short orders as short and also did not get a locate for the short positions:

“In attempting to liquidate these positions as quickly as practicable, DE Route engaged in short selling activity. DE Route did not mark its short orders as short or marked them long and did not locate or document the availability of securities to borrow prior to effecting these short sales.”

Then, just yesterday we found out that the Nasdaq hacking incident that occurred earlier this year was much more serious than first reported. According to Reuters Read article here :

“Hackers who infiltrated the Nasdaq’s computer systems last year installed malicious software that allowed them to spy on the directors of publicly held companies. “God knows exactly what they have done. The long term impact of such attack is still unknown,” said Tom Kellermann, a well-known cyber security expert with years of experience protecting central banks and other high-profile financial institutions from attack…Investigators have learned that hackers were able to spy on “scores” of directors who logged onto before the malicious software was removed”

Unapproved error accounts, illegal short selling and spying on directors of public corporations are not exactly what you think of when you think of a stock exchange. But then again, is a stock exchange really what it used to be anymore?