Broker-Dealer Settles Nasdaq Texas Charges for Market-Access Control Failures

A broker-dealer settled Nasdaq Texas exchange charges for pre-trade control violations and supervisory system failures to prevent erroneous orders.

According to the AWC, the pre-trade-control and supervisory failures during the relevant period included the following: (i) the firm's Average Daily Volume control was set at 500 percent of the 20-day ADV, too high to effectively complement the firm's single-order quantity and notional-value controls, (the firm had later reduced it to 30 percent;) (ii) the firm's Price Away control was set at 5 percent for securities priced above $50.00 during regular trading hours, exceeding the exchange's 3 percent numerical guideline for clearly erroneous transactions with no reasonable explanation provided; (iii) the broker-dealer's predecessor firm failed to apply the Price Away control to orders electronically amended by clients; and (iv) the firm lacked a supervisory system or written supervisory procedures designed to document and review traders' overrides of soft blocks triggered by the firm's pre-trade controls.

The exchange found that the conduct violated Securities Exchange Act Rules 15c3-5(b) and 15c3-5(c)(1)(ii) ("the Market Access Rule") and Nasdaq Texas Regulation, General 9, Sections 20(a) and 1(a). ("Supervision").

The firm agreed to a censure and an $85,000 fine to settle the charges, resolved together with a similar matter for a total fine of $225,000. The exchange noted, as an aggravating factor, that the predecessor firm had entered into settlements with four self-regulatory organizations in September 2023 over the same ADV and soft-block supervisory deficiencies, representing in those settlements that it had remediated or was remediating the issues, however, according to the AWC, the firm did not in fact remediate them.