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Federal regulators have sanctioned the National Stock Exchange in Chicago and its chief executive for allegedly allowing trading firms to cheat investors in hundreds of thousands of transactions by failing to fully enforce the exchange’s own rules from 1997 through 2003. The Securities and Exchange Commission announced the settlement Thursday with the exchange and its president and CEO, David Colker, who was censured and agreed to pay a $100,000 civil fine. The exchange itself, also censured, was not fined in the settlement but agreed to pay $1 million for audits of its regulatory oversight and to separate its regulatory function from its business operations. It was the latest enforcement action by the SEC against stock exchanges for alleged lapses that resulted in ordinary investors being disadvantaged. The agency recently sanctioned the New York Stock Exchange, the country’s largest, with failing to police the specialist firms that manage stock auctions on the exchange floor. U.S. stock exchanges, which are responsible for regulating themselves, “must vigorously enforce their own rules and the federal securities laws,” SEC Enforcement Director Linda Thomsen said in a statement issued Thursday. “This settlement will further safeguard investors by strengthening (the National Stock Exchange’s) regulatory functions.” SEC enforcement attorneys also have been negotiating settlements with the American Stock Exchange in New York and the Philadelphia Stock Exchange. The SEC said the National Stock Exchange failed to conduct surveillance of its trading firms to detect violations of a rule prohibiting them from trading stocks for their own accounts ahead of customers’ orders. At Colker’s direction, the exchange did not file an application with the SEC seeking approval for its limited enforcement of the rule, as required by law, the agency said. As a result, public customers lost the opportunity to get the best price buying or selling stocks from 1997 through 2003, it said. The National Stock Exchange, formerly known as the Cincinnati Stock Exchange, and Colker neither admitted nor denied wrongdoing in the agreement with the SEC. The exchange also agreed to refrain from future violations of the securities laws. Bruce Coolidge, an attorney representing the exchange, and Colker’s lawyer, Stanley Sporkin, didn’t immediately return telephone calls seeking comment. Copyright 2005 Associated Press. All Rights Reserved. This material may not be published, rewritten, or redistributed.

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