Market Maker Fined for Not Maintaining Good Quotes

A firm settled Nasdaq Stock Market LLC ("Nasdaq") charges for failing to meet its "continuous two-sided trading interest during regular market hours" obligations.

According to the AWC, during the relevant periods, the firm failed to maintain appropriate quotes in some instances because of a technical issue with the firm's two-sided quoting engine. Nasdaq found that the engine "paused trading for the first trade date following a corporate action that resulted in the creation of a new security identifier or changes to an existing one." Other times, the failures occurred "due to a variety of other technical issues and because the firm erroneously classified one symbol as a restricted security."

Nasdaq found that the firm failed to maintain appropriate quotes in other instances because the quoting engine: (i) erroneously used the best bid/offer from six major exchanges for pricing information, instead of the National Best Bid and Offer; (ii) used stub quotes and not the NBBO for price calculation before market open; and/or (iii) because the firm categorized certain symbols as belonging to the incorrect pricing tier.

Further, Nasdaq determined that the firm's supervisory reports failed to identify full-day quoting lapses or monitor compliance with designated quoting percentages. Nasdaq concluded that the firm failed to establish and maintain adequate supervisory systems.

As a result, Nasdaq charged the firm with violations of Nasdaq Rule 4613(a) ("Quotation Requirements") and Equity 2, Section 5(a)(2) ("Pricing Obligations") and Nasdaq Regulation General 9, Sections 20(a) ("Supervision") and 1(a).

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $60,000 fine. Nasdaq noted that the firm is no longer a registered market maker on its platform.