Broker-Dealer Settles NYSE Charges for Failing to Surveil Millions of Trading Records

A broker-dealer settled NYSE charges for failing to detect manipulative and insider trading due to significant data gaps in its surveillance reports.

In the Letter of Acceptance, Waiver, and Consent, the NYSE found the firm "failed to surveil hundreds of millions of trade, order, and position records for potentially violative trading" during the relevant period. The regulator determined that these supervisory failures stemmed from flaws in two systems that fed data to the firm's surveillance units: a software update to an order management system that caused the omission of approximately 440 million equity trades, and a database error that diverted an estimated 480 million records to an unreviewed "Orphan File" which contained substantial information concerning transactions including "order codes, share quantities and execution dates and times."

The NYSE found that although internal audits identified data quality issues and red flags, the firm did not take timely remedial action and did not fully correct the issues until years later. As a result, the NYSE found the firm's supervisory system and procedures were not reasonably designed to achieve compliance with applicable laws and rules.

The NYSE found that the firm violated NYSE Rules 342 ("Compliance Supervisors") and 3110 ("Supervision").

To settle the matter, the firm consented to a censure and a fine of $445,312.50, which was resolved simultaneously with similar matters brought by other self-regulatory organizations for a total fine of $7,125,000.