The founder of market data outfit Nanex says that he has been awarded $750,000 for a whistleblowing tip that resulted in the New York Stock Exchange getting slapped with a $5 million SEC fine.
In 2012 the Securities and Exchange Commission fined Nyse $5 million for giving proprietary customers a head-start by sending them market data before it went out to the public.
Nanex's Eric Hunsader has now told the Chicago Tribune that he first tipped off the regulator in 2010. Then, in 2013 he took advantage of new whistleblower rules to apply for a cash reward. Although the SEC does not disclose whistleblower rewards, Hunsader says that it has determined to pay him three quarters of a million dollars.
However, the Nanex man, who has long been a thorn in the sides of high-frequency traders, told the Tribune he would have happily accepted just $1 if the SEC had acted on his tip immediately, adding that the $5 million fine was "way too light — it should have been $100 million".
Back in 2012 the SEC concluded that over an "extend period of time" beginning in 2008, Nyse sent out data through two of its proprietary feeds - Book Ultra and PDP Quotes - before sending it to the consolidated tape, violating SEC Regulation NMS.
The disparities in data release times - which ranged from single-digit milliseconds to multiple seconds - was partly down to an internal Nyse system architecture that gave one of the feeds a faster path to customers. This was compounded by a software issue in the system that sent data to the consolidated feed.
The SEC order criticised Nyse's "inadequate compliance efforts", finding that the compliance department was not involved in important technology decisions, including the design, implementation, and operation of market data systems.
The exchange also failed to retain computer files that contained information about transmission of market data, including the times that IT sent data to be included in the consolidated feed. This failure complicated Nyse's ability to determine when it experienced delays sending data and calculate their length.