The US Securities and Exchange Commission announced Wendesday that it has initiated enforcement actions against 14 specialist firms alleging unlawful proprietary trading on several regional and options exchanges.

The firms agreed to settle the SEC’s charges by collectively paying nearly US$70 million in disgorgement and penalties. The SEC charged the specialist firms for violating their fundamental obligation to serve public customer orders over their own proprietary interests by “trading ahead” of customer orders, or “interpositioning” the firms’ proprietary accounts between customer orders.

“These firms violated the public trust by abusing the privileged position they had as specialists on the various exchanges,” said James Clarkson, acting director of the SEC’s New York Regional Office. “Today’s enforcement action demonstrates that the SEC has no tolerance for unscrupulous trading practices, and will work vigorously to protect investors from improper trading conduct.”

The commission instituted settled administrative and cease-and-desist proceedings against eight specialist firms: Botta Capital Management L.L.C.; Equitec Proprietary Markets LLC; Group One Trading L.P.; Knight Financial Products LLC; Goldman Sachs Execution & Clearing L.P.; SLK-Hull Derivatives LLC; Susquehanna Investment Group; and TD Options LLC. According to the SEC’s order, the firms engaged in improper proprietary trading on the American Stock Exchange, the Chicago Board Options Exchange, and the Philadelphia Stock Exchange. Those firms will pay, in the aggregate, more than US$22.7 million in disgorgement and more than US$4.3 million in penalties. The commission also ordered the firms to cease-and-desist from future violations, and censured each of the firms. The firms consented to the entry of the orders without admitting or denying the findings.

It also filed settled civil injunctive actions in the U.S. District Court for the Southern District of New York against six specialist firms: Automated Trading Desk Specialists LLC; E*Trade Capital Markets LLC; Melvin Securities LLC; Melvin & Company LLC; Sydan LP; and TradeLink LLC. According to the SEC’s complaints, these firms engaged in improper proprietary trading on the Chicago Stock Exchange. Those firms have agreed to settle the SEC’s charges by consenting to the entry of judgments enjoining them from future violations of the above provisions, and ordering them to pay, in the aggregate, more than US$35.7 million in disgorgement and more than US$6.7 million in penalties. The consent judgments are subject to approval by the court.