Nasdaq PHLX Fines Firm for Recordkeeping Violations Regarding Options Orders
A firm settled Nasdaq PHLX, LLC ("Phlx") charges brought for recordkeeping and supervisory violations related to manually handled options orders.
According to the AWC, between April 2019 and October 2022, the firm failed to maintain accurate order memoranda for thousands of manual options orders executed on Phlx and other options exchanges. The firm recorded inaccurate order receipt, transmission, and execution times, and in some cases, incorrect routing exchange information, affecting approximately 11,328 orders.
In addition, from January 2019 to August 2024, the firm failed to establish, maintain, and enforce a supervisory system and written supervisory procedures reasonably designed to achieve compliance with the firm's recordkeeping obligations under the federal securities laws and Phlx Rules. Phlx determined that the firm's "supervisory systems and procedures failed to provide for reasonable identification, escalation, and remediation of the timestamp and executing exchange information inaccuracies in the [f]irm's manual options order memoranda." While the firm's procedures required supervisory reviews, the exchange found these reviews "too limited in scope" to detect and correct all inaccuracies. Moreover, Phlx determined that the firm did not provide adequate guidance to designated supervisory principals on "how and whether to take further action when they became aware of traders who entered inaccurate information." Phlx determined that even when firm personnel identified inaccuracies in the firm's manual options order memoranda, the firm personnel "failed to reasonably escalate the issues and...to correct the inaccuracies."
Phlx determined that the firm violated SEA Section 17 ("Records and Reports") and Rule 17a-3 ("Records to be made by certain exchange members, brokers and dealers"); Phlx Rule 760 ("Maintenance, Retention and Furnishing of Books, Records and Other Information") (for conduct before February 3, 2020) and Phlx Rule Options 6E, Section 1 ("Records, reports and audits") (for conduct on and after February 3, 2020); Phlx Rule 748(h) ("Supervision") (for conduct before February 3, 2020) and Phlx General Regulation 9, Section 20 ("Supervision") (for conduct on and after February 3, 2020); and Phlx Rule 707 ("Conduct Inconsistent with Just and Equitable Principles of Trade") (for conduct before February 3, 2020), Options 9, Section 1 ("Business Conduct") (for conduct between February 3, 2020 and January 21, 2021), and Phlx Rule General 9, Section 1 ("General Standards") (for conduct on and after January 22, 2021).
Nasdaq noted that the firm previously faced a related sanction in June 2020 for inaccurate options order records.
To settle the charges, the firm agreed to (i) a censure and (ii) pay a $275,000 fine ($86,000 to Phlx).