Broker-Dealer Settles With Nasdaq Over Manipulation Surveillance Failure

A broker-dealer settled Nasdaq claims that it failed to properly monitor foreign broker-dealers' omnibus accounts to prevent market manipulation.

According to Nasdaq, from September 2022 to the present, the firm's surveillance and written procedures were not strong enough to catch suspicious trading in foreign broker-dealers' omnibus accounts. The conduct violated Nasdaq Rule General 9, Sections 1(a) and 20.

Nasdaq pointed to three types of manipulative trading the firm missed:

• Coordinated trading: the firm did not surveil for prearranged or coordinated trades in the omnibus accounts. In one instance, trading spikes artificially inflated the price of a low-priced stock by approximately 500%.
• Wash trades: the firm's systems flagged possible wash trades but failed to investigate them promptly. The firm asked a foreign affiliate about suspect trades in October 2022 but did not follow up until February 2024.
• Momentum ignition: the firm failed to escalate or properly review when a trader tried to artificially trigger a price surge. As a result of this, the firm missed a situation where a stock's price was driven from $5.60 up to $25.00.

The firm agreed to a censure and a $170,000 fine, of which $52,450 goes to Nasdaq. The firm also agreed to fix its systems and procedures within 60 days.