Broker-Dealer Settles Charges with Multiple Exchanges for "Order Protection Rule" Violations

A broker-dealer settled parallel charges brought by NYSE LLC, NYSC Arca, Inc., NYSE Chicago, Inc. and NYSE American LLC (collectively, "the Exchanges") for failing to recognize technical errors with a vendor's smart order router which resulted in the broker-dealer failing to route intermarket sweep orders ("ISOs") as necessary to execute against protected quotes.

In separate Letters of Acceptance, Waiver, and Consent, the Exchanges found that the broker-dealer routed a large number of ISO orders to the listing exchange that were priced through other market centers' protected liquidity. The Exchanges found that the broker-dealer (i) did not identify the technical issues, (ii) "did not conduct a review designed to verify that it routed all necessary ISOs to execute against protected quotations"; and (iii) did not update its supervisory systems to include a review of ISOs for compliance with National Market System regulations ("Reg NMS").

As a result, the Exchanges found that the broker-dealer violated Reg. NMS Rule 600(b)(31) ("NMS security designation and definitions: Electronic communications networks") and Reg NMS Rule 611(c) ("Order protection rule"). Additionally, each of the Exchanges found that the broker-dealer violated their respective rules on equities pertaining to ISOs and limit orders.

To settle the charges the broker-dealer agreed to (i) a censure and (ii) a $125,000 fine, of which NYSE LLC receives $17,389, NYSE Arca, Inc. receives $21,227, NYSE Chicago, Inc. receives $9,804 and NYSE American LLC receives $10,064. The broker-dealer also settled parallel charges with FINRA, Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc. and Investors Exchange, LLC.

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