[ by Howard Haykin ]

The SEC is investigating the NYSE into allegations the Exchange violated rules intended to promote fair competition.  The Commission's investigation centers on a regulation that prohibits an exchange from sending out data on a private feed to certain clients faster than on public data feeds. The NYSE reported in early August that it was engaging in settlement talks with the SEC, although as August draws to a close, no further progress has been reported.  The NYSE made the statement after Reuters reported on those talks earlier on Monday, citing people familiar with the matter;  however, the probe had not been made public by either regulator.

"NYSE Euronext has been working with the SEC to resolve alleged violations of Rule 603(a) of Regulation NMS, a technical rule governing the timing of delivery of certain exchange market data.  The company does not expect that any settlement of this matter will be material." -- NYSE Statement.

Origins of the Case. The case stems from an alleged violation of the regulation that governs the dissemination of market information, known as Regulation NMS, or national market system.  It is unclear whether the SEC will ask NYSE to pay a fine to resolve the allegations.  The case is still likely a few months away from being completed, people familiar with the matter told Reuters. The settlement talks come during a period of renewed focus by the SEC about the vulnerability of the markets to super-fast computer-driven trading and fears that some market participants are getting an unfair advantage.  It also followed by one week the soft glitch at Knight Capital that caused a $440 million trading loss and nearly took down the firm. What concerns the SEC most is the continuous decline of investor confidence in the markets and financial institutions.  The series of technological mishaps and investigations into serious manipulations have left investors wondering what, if anything, could be going right in the financial industry. Earlier this year, the SEC's market abuse specialized unit disclosed it was conducting roughly 20 different inquiries, ranging from order types to how exchanges police their markets. At Issue with the NYSE Matter. According to a person familiar with the matter, the private data feeds at issue in the NYSE probe only gave certain clients an advantage that amounted to milliseconds. The person also said the SEC's investigation into NYSE did not stem from events in the flash crash.  Yet, critics contend that in the world of high-speed trading, a few milliseconds can be enough to give some investors an advantage.   [CNBC, 8/4/12].