U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19229 / May 19, 2005
SEC v. David Colker, Case No. 05-C-2977 (N.D. Ill.)
In the Matter of National Stock Exchange and David Colker,
Exchange Act Rel. No. 34-51714 / May 19, 2005
SEC SUES DAVID COLKER, CEO OF NATIONAL STOCK EXCHANGE, FOR AIDING AND ABETTING THE EXCHANGE'S FAILURE TO ENFORCE ITS RULE
The Securities and Exchange Commission (Commission) today filed a civil action against David Colker, president and chief executive officer of the National Stock Exchange (NSX), for his role in failing to enforce compliance by NSX dealers with NSX's market order exposure (MOE) rule from 1997 through 2003. Colker has agreed to settle the charges by consenting, without admitting or denying the findings in the Commission's complaint, to the entry of a final judgment in the U.S. District Court for the Northern District of Illinois ordering him to pay a $100,000 civil penalty. The settlement terms are subject to court approval.
The Commission's complaint alleges that NSX's MOE rule required NSX dealers to provide customer market orders with the opportunity for price improvement whenever the spread between the national best bid and offer (NBBO) was greater than the minimum price variation (MPV). In 1996, when NSX adopted the MOE rule, the MPV was 1/8 of a point and, as a result, the rule required an opportunity for price improvement at NBBO spreads of 1/4 point or greater. In 1997, when the MPV decreased from 1/8 to 1/16 of a point, NSX continued enforcing the rule at spreads of 1/4 point or greater instead of at 1/8 point or greater. At Colker's direction, NSX did not file a proposed rule amendment with the SEC seeking approval for its limited enforcement of the MOE rule, although NSX was required to do so. NSX and Colker continued to enforce the MOE Rule only when the NBBO spread was at 1/4 point or greater even after October 2000, when the MPV was decreased from 1/16 of a point to $.01.
The Commission's complaint further alleges that Colker, by implementing NSX's limited enforcement of the MOE Rule without first obtaining Commission approval through a proposed rule amendment, aided and abetted NSX's violations of Section 19(g) of the Securities Exchange Act of 1934 (Exchange Act).
In related administrative proceedings, Colker and NSX consented to the issuance of a Commission Order. NSX, without admitting or denying the findings in the Commission's Order, consented to a censure and an order to cease and desist from future violations of Sections 17(a), 19(b), and 19(g) of the Exchange Act and Rule 17a-1 thereunder. In addition, NSX was ordered to undertake substantial remedial measures to bolster its regulatory and governance functions, including removing the current chief executive officer and his successors from any future role in NSX's regulatory functions. Colker consented, without admitting or denying the findings in the Commission's Order, to the imposition of a censure.