Broker-Dealer Fined for Inadequate Market Access Controls

A broker-dealer settled FINRA charges for failing to properly manage its market access services.

FINRA found that the firm (i) relied on a certain price variance control that, once triggered, sent a warning message to a firm principal but still allowed the order to be routed to the market, (ii) did not implement policies or procedures for how the warning messages should be reviewed or documented and (iii) failed to document which customer accounts were monitored by the firm using such controls. Additionally, FINRA determined that the broker-dealer's single order size and price variance controls "relied on static numbers that did not consider the individual trading characteristics of individual securities or customers, and that were too high to be reasonably designed to prevent the entry of erroneous orders absent additional reasonably designed controls."

FINRA determined that the firm also failed to maintain accurate records of its pre-trade market access controls or its rationale for selecting its pre-trade controls. In addition, FINRA found that the broker-dealer failed to conduct an annual review of its business activity related to market access to determine whether its risk management controls and supervisory procedures were compliant under the relevant rules and regulations.

FINRA concluded that the broker-dealer violated Exchange Act Section 15(c)(3) ("Registration and regulation of brokers and dealers"), Exchange Act Rule 15c3-5 ("Risk management controls for brokers or dealers with market access") and FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade"). To settle the charges, the broker dealer agreed to (i) a censure, (ii) a $100,000 fine and (iii) undertakings to correct its supervisory deficiencies.