Broker-Dealer Fined for Failing to Respond to Potential Manipulative Trading

A broker-dealer settled charges with FINRA and multiple exchanges (see Primary Sources below) for failing to properly surveil its client broker-dealers for potential manipulative trading.

In Letters of Acceptance, Waiver and Consent ("AWC") FINRA, BYX, BZX, EDGA, EDGX, IEX, Nasdaq, BX, Phlx, NYSE Arca, NYSE American, NYSE and NYSE National found that the broker-dealer, which provided "execution, clearing and stock lending services to broker-dealers and institutional customers," failed to properly surveil for red flags indicating manipulative trading by its client broker-dealers. These include red flags on marking the open or close, prearranged trading and wash sales. The exchange groups found that the broker-dealer lacked staffing to review and resolve identified red flags, including for purposes of determining whether to file Suspicious Activity Reports.

FINRA stated that the broker-dealer violated Exchange Act Rule 15c3-5 ("Risk management controls for brokers or dealers with market access") Regulation NMS Rule 611(c) ("Disclosure of order routing information"), and FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the broker-dealer agreed to (i) a censure, (ii) pay a collective $3 million fine to FINRA and the exchange groups and (iii) comply with the undertakings set forth in the respective AWCs.