Firm Settles FINRA Charges for Securities Trading Violations
Commentary by Steven Lofchie
A firm settled FINRA charges for accepting market orders for newly issued shares "prior to the commencement of trading of such shares in the secondary market."
According to the AWC, the firm, which provides market access and routing/execution services to broker-dealers, improperly accepted market orders for the purchase of equity new issues in the secondary market. FINRA found that, because the firm's WSPs inaccurately defined "acceptance" for purposes of the rule as to the time the order was routed for execution, representatives were able to accept material terms of market orders "without reasonable controls to reject any orders that were accepted prior to the commencement of secondary market trading."
FINRA also found that the firm "failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to comply with FINRA" rules on trading practices.
As a result, FINRA found that the firm violated FINRA Rule 5131(d)(4) ("New Issue Pricing and Trading Practices"), Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision").
To settle the charges, the firm agreed to (i) a censure, (ii) pay a $275,000 fine and (iii) undertake corrective action.
Commentary
Why does it matter if an order is put on the second before or the second after trading starts? As we move into a new era of securities regulation, it is fair to ask whether a rule serves a purpose or whether it is it worth preserving.