Proprietary Trading Firm Settles NYSE Arca Charges for Order Control Failures

A proprietary trading firm settled NYSE Arca charges for failing to maintain (i) sufficient order and market access controls and (ii) related written supervisory procedures ("WSPs") to prevent the entry of erroneous orders.

In a Letter of Acceptance, Waiver, and Consent, NYSE Arca alleged that, among other things, the firm failed to:

• set forth the rationale for "establishing, changing, or reviewing" its erroneous order controls, including justification for the use of a non-functioning erroneous order control system;

• provide NYSE Arca with an explanation or documentation as to why the firm chose its control settings and how such order controls were reasonable, given the firm's trading activity;

• demonstrate an undertaking of analysis when changing erroneous order controls or provide guidance that risk managers used to justify the changes;

• properly configure its third-party controls to detect erroneous orders; and

• produce required WSPs with respect to (i) establishing erroneous order controls, or determining how to change control settings or information, (ii) how certain personnel should respond when erroneous order controls were triggered, (iii) assessing the appropriateness of the current erroneous order controls, (iv) evaluating and reviewing erroneous order control limits and procedures, and (v) utilizing an "average daily volume" approach in determining or changing erroneous order controls, including justifying use of ADV to set control levels.

As a result, NYSE Arca determined that the firm violated SEA Rules 15c3-5 ("Risk Management Controls for Brokers or Dealers with Market Access"), 15c3-5(b), 15c3-5(c)(1), 15c3-5(c)(1)(ii) and 15c3-5(e). Additionally, the firm was found in violation of NYSE Arca Rule 11.18(b) ("Supervisory System") because, among other things, the firm's WSP's failed to reasonably describe how the annual review process should be performed.

To settle the charges, the firm agreed to (i) a censure and (ii) a $15,000 fine.