Nasdaq PHLX Fines Firm for Violations Regarding Manually Routed Options Orders

A firm settled Nasdaq PHLX, LLC (“Phlx”) charges brought for recordkeeping and supervisory violations related to manually routed options orders.

According to the AWC, from February 2019 through October 2023, the firm "failed to accurately record order receipt, transmission, and execution times on order memoranda for [approximately] 139,511 manually routed options orders executed on Phlx or other options exchanges."

In addition, Phlx found that the firm had certain supervisory failures with regard to its manual routing of options orders to "third-party broker-dealers for execution on Phlx and other exchanges." Phlx determined that despite the firm's supervisory process requiring the firm to "review whether the times it entered to record order receipt and transmission times accurately reflected that they occurred before the order execution times provided to the firm by the third-party broker-dealers," the firm had "errors in the order entry process" that led to instances where "actual execution times...preceded the recorded order receipt, transmission, and execution times." Phlx stated that these inaccuracies "went undetected" because the recorded times "appeared in the correct order" on the firm’s records. Phlx determined that the firm did not conduct a review to determine the accuracy of recorded times "if [they] appeared in the correct order." 

Phlx determined that the firm violated Exchange Act Section 17(a) ("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 ("Maintenance, Retention and Furnishing of Books, Records and Other Information") (for conduct on and after February 3, 2020); Phlx Rule 748(h) ("Supervision") (for conduct before February 3, 2020); and Phlx Rule General 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), Phlx Rule 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 January 2020 for similar violations involving inaccurate options order timestamps and deficient supervisory controls.

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $600,000 fine ($150,000 to Phlx).