The U.S. Securities and Exchange Commission issued a settled cease and desist order against the Philadelphia Stock Exchange on Thursday for its failure to enforce certain trading and order handling rule violations by its specialists from April 1999 through January 2002.

The order found that the exchange had several deficiencies in its surveillance programs to assure compliance with its own rules and the federal securities laws in both its options and equities markets. Specifically, it found that the exchange had failed, in some instances, to develop programs to detect violations, or, in other instances, that the programs in place were not adequate to detect such violations.

The regulatory failures in connection with the options market had been previously addressed by the commission in an order issued in September 2000. In that order, the exchange undertook to enhance and improve its surveillance, investigative and enforcement processes with respect to options order handling rules. Despite enhancements it implemented, significant inadequacies in its options surveillance programs persisted, the SEC said.

The commission also found that it had similar deficiencies in its surveillance for order handling violations in it equities market and that it inadequately surveilled for violations of equities trading rules relating to short sales, front-running, marking the close, and wash trades. Because of this inadequate surveillance, it failed to detect violations by specialists.

According to today’s order, the exchange has undertaken to retain a third party auditor to conduct a comprehensive audit of its surveillance, examination, investigation, and disciplinary programs relating to trading applicable to all floor members in 2006 and 2008. It has also undertaken to implement annual training program for all floor members and certain members of its regulatory staff. The exchange consented to the issuance of the order without admitting or denying any of the findings.

“It is essential that self-regulatory organizations vigorously enforce their own rules and the federal securities laws. This settlement will help strengthen Phlx’s regulatory function,” said Linda Chatman Thomsen, director of the SEC’s division of enforcement.