|NYSE to prosecute stock loan abuses, Ketchum says |
By JED HOROWITZ
Dow Jones Newswires
June 27, 2006, 4:04 PM EDT
NEW YORK (Dow Jones/AP) _ The New York Stock Exchange is on the verge of bringing enforcement actions against some brokerage firms for stock-lending violations, an NYSE executive said Tuesday.
"You are going to see some significant cases on the stock-loan side of things in the relatively near future," NYSE Regulation Chief Executive Richard Ketchum told reporters after speaking at a securities industry risk management conference.
The violations involve improper use of "finders," people hired by brokers to help them locate securities to complete short sale and other kind of transactions. Some NYSE member firms have been using finders unnecessarily to locate readily available, liquid securities, creating higher costs for the firms' customers, Ketchum said.
He wouldn't elaborate on the timing of the cases or the companies involved.
His comments come as the NYSE regulatory unit has been expanding its staff and activities at a time when its parent, NYSE Group Inc. has become a public, for-profit company.
Last week, NYSE Regulation's enforcement head, Susan Merrill, said her unit expects to bring actions soon regarding short-sale violations by brokers. They include instances where firms lend securities designated for other uses, such as secondary market sales, a violation of what is known as Reg M.
"We've seen some things there we don't like," Ketchum said Monday.
Short sales occur when traders sell stock they don't own in the hope they can buy it at a lower price in time for delivery. Brokerage firms are prohibited from aiding short sales if they know the seller can't cover the trade.
NYSE Regulation also is working on an enforcement action against a large brokerage firm that gave preferential trading treatment to orders from its own hedge fund in which its employees had interests, an exchange official said earlier this year. Ketchum declined comment on the specific case but said his unit is exploring a number of issues involving hedge funds, including conflicts of interest.