The US Securities and Exchange Commission (SEC) has imposed a $9m civil penalty on the New York Stock Exchange (NYSE) following a trading malfunction that disrupted opening auctions for more than 2,800 securities.
The enforcement action relates to an incident that took place on 24 January 2023, when the exchange inadvertently ran both its primary and backup trading systems at the same time, said Finextra.
According to the regulator, this error caused the primary system to incorrectly interpret that opening auctions for thousands of securities had already taken place when in fact they had not.
Opening auctions are a critical process in public markets, establishing the first official trading price of securities at the start of the trading day. The failure to conduct these auctions properly created widespread disruptions across the market, affecting the trading of a large number of listed securities.
The SEC’s order found that the malfunction stemmed partly from a lack of appropriate oversight controls around the technology supporting the exchange’s opening auction systems. Specifically, the regulator determined that NYSE did not maintain written policies and procedures designed to monitor the systems responsible for these auctions or verify whether the auctions had occurred as intended.
As a result, the exchange was unable to detect the issue immediately. According to the SEC’s findings, NYSE remained unaware of the full scale of the problem for nearly 90 minutes after the opening of trading that morning.
The disruption triggered several knock-on effects across the market. The SEC stated that the failure to properly conduct opening auctions resulted in price-triggered trading restrictions and market-wide trading pauses in 84 securities. In addition, the incident ultimately led to thousands of trades being cancelled or “busted” after they had already been executed.
Such events can undermine confidence in market infrastructure, particularly when they affect the opening price discovery process for listed securities. Exchanges are expected to maintain robust monitoring procedures and operational safeguards to ensure trading systems operate correctly and that problems can be quickly identified and addressed.
Without admitting or denying the SEC’s findings, NYSE agreed to resolve the matter by consenting to a cease-and-desist order and paying the $9m penalty.
The case highlights the growing regulatory focus on the resilience and oversight of critical market infrastructure, particularly as exchanges and trading venues rely increasingly on complex technological systems to manage high volumes of transactions.
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