Bloomberg has reported the enforcement action and recipient of the first case of a reward for independent analysis by a SEC whistleblower (announced January 2016). The financial professional discovered a stock exchange data feed operating in violation of Regulation NMS on the day of the Flash Crash (May 6, 2010). The Securities and Exchange Commission, per its policy, did not identify the individual’s name or the specific enforcement action when it announced the whistleblower award.
The case reported by Bloomberg was settled by NYSE and its parent in 2012 for a fine of $5 million, the first financial penalty from the SEC against an exchange. It violated Rule 603(a) of Reg NMS by selling access to fast proprietary data feeds while the company knew certain computer servers provided delayed information to its consolidated data feeds during high volume trading.
Rule 603(a) requires self-regulatory organizations and broker dealers to transmit data to the network processor for the consolidated feeds at the same time or sooner than it independently distributes data. Nevertheless, because of problems in the software providing data to the network processor that was not present in the proprietary data feeds, NYSE was not in compliance with this rule. As a result, some customers got access to NYSE information faster than the consolidated feeds, particularly in times of high trading volume such as the Flash Crash.
The tip reportedly provided three charts to the SEC which made clear that the company was violating Rule 603(a). The tipper wasn’t contacted by the SEC and found out about the enforcement action when the settlement was announced. The individual’s company provides software which gives data feed access to traders. It also provides historical market data to financial professionals.
It took more than three years for the SEC to make the monetary award. There have been discussions of delays in the award process previously but the SEC has defended its determination process. Based on the information that we’ve seen now, it looks like award announcements take between 1 and 3.5 years.
To speak to our SEC whistleblower lawyers about this information or for an evaluation of a potential submission to the SEC, please call 1-800-590-4116.