SEC Fines Trader and BNY Mellon $24 Million for “Best Execution'”Scam
According to the SEC, he deprived many among MIS’s 600 plan clients of best execution by executing their orders at stale or inferior prices – often outside the US National Best Bid and Offer (NBBO) – in cross trades that gave better prices to hedge fund clients. NBBO refers to the SEC rule requiring brokers to guarantee that their customers receive the best prevailing ask price when they purchase securities.
Here is how Shaw perpetuated his scam, according to the SEC:
He manipulated the latency of a a regional U.S. exchange’s order management system. In December 2006, the regional exchange, added a functionality called the “validated cross window.
The “validated cross window” allowed member firms of the regional exchange to freeze the NBBO for a security.
That’s how Shaw to obtain lower prices for hedge fund clients that wanted to cross-sell orders from customers of a plan or vice versa.
“The validated cross window validated a market, meaning the NBBO, by capturing and freezing a snapshot of the NBBO market for a security at the moment a member firm broker typed the security symbol into the system. At the same moment, a window expiration timer was initiated.
The timer gave the broker up to three minutes to fill in the required fields including quantity and price, and to submit the trade for execution and reporting.”
Read the full story here http://www.securitiestechnologymonitor.com/news/bny-mellon-to-pay-fine-26820-1.html
TD Ameritrade Best Exectution
See Sec Document http://www.sec.gov/litigation/admin/2011/34-63724.pdf