Broker-Dealer Fined for Mishandling Option Trade

A broker-dealer settled NYSE Arca ("Exchange") charges for (i) failing to obtain customer consent prior to adjusting an options trade, (ii) executing the trade at terms that the customer had said were not acceptable and (iii) recordkeeping failures.

In a Letter of Acceptance, Waiver and Consent, the Exchange found that the firm, having executed a customer's option trade, subsequently agreed to change the price in a manner that was unfavorable to the customer to accommodate the option counterparty. The Exchange said that the broker-dealer then went back to the customer to tell the customer a new price that was outside of the customer's pre-established price limits. The Exchange said the broker-dealer told the customer that the reason for the change was that there had been a printer error, rather than communicating that it had agreed with a counterparty to the price change. The Exchange also found that the firm failed to maintain adequate records of its agreed cancellation and rebooking of the trade.

As a result, the Exchange determined that the broker-dealer violated Exchange Act Section 17(a) ("Records and reports"), Exchange Act Rule 17a-3(a)(6)(i) ("Records to be made by certain exchange members, brokers and dealers"), NYSE Arca Rule 2.28 ("Books and Records"), Rule 11.1(b) ("Adherence to Law and Good Business Practice") and Rule 11.18(b)-(c) ("Supervision").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $120,000.