NYSE explains investigation after Journal stories pile up

NEW YORK: Under scrutiny after several Wall Street Journal stories reported on what appeared to be a budding scandal, the NYSE fought back by posting a detailed rebuke of the Journal's coverage on its website.

NEW YORK: Under scrutiny after several Wall Street Journal stories reported on what appeared to be a budding scandal, the NYSE fought back by posting a detailed rebuke of the Journal's coverage on its website.

Beginning on April 17, the Journal ran a series of stories using background sources to confirm that the NYSE was conducting an in-depth probe of some of its floor specialists.

Specialists facilitate buying and selling in stocks by matching up orders, and occasionally purchasing or selling shares to keep the market liquid.

The Journal reported that the specialist firms were being investigated for capitalizing on their unique position, which allows them to anticipate the short-term direction of a stock, and unfairly make profits - a practice known as "front-running."

On April 22, the NYSE published a statement on its website stating that the Journal's reporting was "erroneous." The NYSE said that while some specialists were under investigation, it was not for front-running, but for intervening in trades where they need not - an infraction called a "negative obligation."

The public rebuke of the Journal's coverage and subsequent explanation of the probe broke with NYSE policy of not commenting on regulatory investigations. The exchange said its hand was forced by the media frenzy that ensued in the coverage's wake.

"The Journal just kind of went off and thought we were investigating something that we were not," said Bob Zito, EVP of marketing communications at the NYSE. "What then happened was that the Journal's coverage was becoming a source for the story to other media. While they were accurate about the fact that there was an investigation, we felt it was important to point out that some of the important details were inaccurate."

The NYSE archived the statement in a section of its website called "Setting the Record Straight," which it says seeks to clarify or correct media reports concerning the exchange. The section has been up since the start of 2003, and has already had six additions this year.

In a statement released shortly after the NYSE statement, the Journal's managing editor Paul Steiger said, "We welcome this additional disclosure by the exchange on this important subject. We believe our coverage has been accurate and fair. As for the exchange's criticism of our semantics, we will happily defer to its experts on whether the proper description of the possible misbehavior under investigation is running in front of public investors or failing to stand out of their way. Meanwhile, we hope that the exchange can tell us and the public soon the extent of the problem and what, if anything, it thinks should be done about it."

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