Broker-Dealer Settles FINRA Charges for Order Protection Rule Violations
Commentary by Steven Lofchie
A broker-dealer settled FINRA charges for failing to ensure intermarket sweep orders ("ISOs") were routed to the correct market centers. FINRA also found that the broker-dealer failed to conduct reviews designed to verify that it routed ISOs to execute against protected quotations.
In a Letter of Acceptance, Waiver, and Consent, FINRA determined that the broker-dealer routed orders that it marked as ISOs to various exchanges, but that technical issues with its vendor's smart order router resulted in the broker-dealer not recognizing and then routing additional ISOs necessary to execute against protected quotes displayed by market centers. FINRA found that the broker-dealer failed to implement a supervisory system to ensure the ISOs were sent and received by the proper venues, on a timely basis, for the correct size and price.
FINRA determined that the broker-dealer violated NMS Rule 611 ("Order protection rule") 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 and (ii) a $19,197 fine.
Commentary
This enforcement order reminds firms that they cannot rely on outside vendors to ensure that their systems meet regulatory requirements.