Broker-Dealer Fined for Failing to Monitor for Manipulative Trading

A broker-dealer settled FINRA charges for failing to supervise the trading activity of its proprietary traders and customers for potentially manipulative trading.

FINRA found that the broker-dealer provided certain customers with access to third-party electronic trading platforms from which the orders were routed to various exchanges for execution. FINRA found that the broker-dealer did not conduct any supervisory reviews of the orders, instead relying on the third-party broker-dealers. FINRA concluded that the broker-dealer did not take any steps to prevent its customers from engaging in potentially manipulative trading, "including layering, spoofing, wash sales, or marking the close or open," even after one of the executing broker-dealers had flagged potentially suspicious activity. FINRA also said that the broker-dealer did not have any supervisory systems in place to monitor its proprietary traders.

FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision"). To settle the charges, the broker-dealer agreed to (i) a censure, (ii) undertakings to correct the supervisory deficiencies and (iii) a civil monetary penalty of $975,000, of which $82,142 was to be paid to FINRA and the remaining amount to settle charges brought by various exchanges.