NY Stock Exchange let Morgan Stanley make after-hours trade
At the New York Stock Exchange, some traders are more equal than others.
That’s the bitter takeaway from stock brokers, who say the Big Board, in an unusual move last week, gave special treatment to a broker at Morgan Stanley who asked to trade large blocks of stocks for several minutes after the markets closed.
The frantic floor trader needed to make electronic orders after the closing bell on at least four stocks on Friday — the last trading day before President Trump and Chinese President Xi Jinping’s long-anticipated summit in Argentina to hash through trade issues, two people familiar with the trades told The Post.
Those sources say the NYSE would normally have shut the trader out of the market, for fear of letting one market player gain an unfair advantage over other participants and wrongly influence stock prices.
Instead, exchange officials on Friday looked the other way, according to the sources. Rather than cutting him off at the standard deadline — 10 seconds before 4 p.m., they gave the Morgan Stanley broker until 4:08 p.m. to complete a last-minute flurry of big transactions, according to the sources.
Eight minutes is an eternity on NYSE’s floor. Miffed traders took it as a sign that the Big Board is willing to bend even the most basic rules that govern trading on the exchange — if the client is big and powerful enough.
“It’s a no-bend rule,” one Wall Streeter told The Post. “If a small firm had asked for that same consideration they would have been told no.”
“If there is a violation of platform’s own rules and regulations, I believe in order to protect the markets and its investors, there should be such regulatory scrutiny involved,” said Lauren B. Shapiro, owner of Capital Legal Group and a former attorney adviser for the SEC and the Financial Industry Regulatory Authority.
Asked about accusations that it looked the other way on the Morgan Stanley trades, NYSE spokeswoman Kristen Kaus declined to comment.
“We don’t comment on the trading activity of member firms,” Kaus said.
Morgan Stanley spokesman Mark Lake declined to comment.
“Exchanges are incentivized to make exceptions for high-volume customers,” said Haim Bodek, a trader who successfully sued another exchange, Direct Edge, for unfair trading practices in 2011.
Still, evidence of NYSE’s unfair treatment of one broker over another could spur “an SEC enforcement matter,” he added.
A Morgan Stanley executive, who spoke on the condition of anonymity, insisted that trading was still open when the broker filled his last-minute orders.
There is no indication that Morgan Stanley did anything unlawful or unethical by asking for more time to trade.
But several other sources said the Morgan Stanley broker was clearly getting transactions executed after trading was closed — and that he shouldn’t have been allowed to do so.
Last Friday’s blowup came as the broker was scrambling to help big clients rejigger their portfolios after a Friday change in the makeup of some major stock indexes, the sources said.
After missing the deadline for electronic orders, the Morgan broker tried to make the trades manually by alerting NYSE officials, called Designated Market Makers, that he still had orders to fill.
When he wasn’t able to get it done because the officials are spread out across the 15,000-square-foot trading floor, the NYSE gave him a hand, the people said.
The Morgan broker “came in after 4 p.m. and told the DMMs to hold it for them, and the NYSE said to hold them,” one person complained. “That’s unfair and a violation of the rule.”
“You can’t be in several places at once,” another source observed.
The Morgan Stanley trades could have moved the prices of the shares and shut out other investors from getting their deals done, the sources griped.
The stock orders were in Yum! Brands, the parent company of Taco Bell; Warren Buffett’s Berkshire Hathaway B shares; Vici Properties, a casino landlord; and Pebblebrook Hotel Trust, a real estate investment trust, though there may have been more, one person added.
NYSE’s lenience saved Morgan Stanley from putting in orders as late as Monday morning — when stock prices spiked in the wake of Trump’s tweet about a thaw in the trade war with China — and potentially saved clients money by getting in on the stocks during normal trading time.
It’s unclear how much the stock prices were affected by the trades, but all four stocks opened in Monday trading higher than where they closed on Friday.
For instance, Yum closed on Friday at $92.22, and opened at $92.96. Berkshire Hathaway B-shares closed at $218.24, and opened at $222.22.
The NYSE typically trades from 9:30 a.m. to 4 p.m. and has rules that restrict regular trading before and after those times.
While some trades occur after the close of the markets in lower-volume auctions, brokers have to alert NYSE officials that they intend to trade certain companies before the close of trading, when volume is much higher.