Broker-Dealer Settles Charges for Credit Limit and Erroneous Order Control Failures

A broker-dealer settled NYSE charges for failing to implement adequate credit limit and erroneous order controls.

According to the NYSE Letter of Acceptance, Waiver and Consent, the broker-dealer was unable to provide a reasonable basis for its decisions to place customers in certain credit limit tiers, thus failing to ensure the establishment of reasonable credit limits for its customers. The NYSE also found that the firm failed to "implement reasonable procedures for setting credit limits." The firm did not provide documentation demonstrating that the credit limit tiers in which it placed its customers resulted in reasonable credit limits for such customers. Furthermore, the broker-dealer's practices regarding credit limits differed from its written supervisory procedures ("WSPs"). Additionally, the NYSE found that the broker-dealer was unable to provide documentation illustrating that it had reasonable erroneous order controls in place, as the firm relied on "the knowledge of the customer" to determine if an order was received erroneously.

In connection with this, the NYSE determined that the broker-dealer's supervisory system was not reasonably designed to achieve compliance with relevant regulations as the firm failed to: (i) reasonably detail in its WSPs the methodology for setting credit limits; (ii) establish reasonable procedures regarding documentation of credit limit breaches; and (iii) establish "a reasonable process for preventing the entry of erroneous orders."

The NYSE determined that the broker-dealer violated SEA Rule 15c3-5 ("Risk Management Controls for Brokers or Dealers with Market Access") and NYSE Rule 3110 ("Supervision").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $25,000.