Nasdaq Phlx Fines Firm for Quote Spread Supervisory Failures

A firm settled Nasdaq PHLX, LLC ("Phlx") charges for supervisory deficiencies related to oversight of Nasdaq's quote spread compliance procedures.

According to the AWC, the firm lacked a supervisory system reasonably designed to comply with Phlx Quote Spread Rules. Phlx highlighted that the firm did not maintain a dedicated surveillance process, instead relying on a system-wide mechanism that flagged violations only when quote width parameters, "automatically configured" in the firm's quoting system, were breached. Phlx also found that the firm did not have a "defined process" for reviewing and implementing quote spread parameter relief issued through Nasdaq Options Regulatory Alerts ("ORAs"). Phlx stated that the firm instead relied on a "manual process" requiring personnel to identify ORAs and code the relief into the firm's trading systems.

Phlx found that the firm's written supervisory procedures ("WSPs") were not "reasonably designed" to prevent and detect violations of Phlx Quote Spread Rules. Phlx stated that the WSPs failed to identify supervisory personnel, outline the steps and frequency of reviews, or specify how such reviews should be documented.

Phlx determined that the firm violated Phlx General 9, Sections 20(h) and 1(c)(1) ("Regulation"). 

Phlx recognized that the firm "has taken corrective actions ...  by (і) implementing a defined process for reviewing quote spread parameter relief provided via ORAs and automatically configuring any such relief into the Firm's trading systems; and (ii) building new surveillance modules, including one that actively monitors the Firm's quote spread performance intraday, and by implementing new supervisory processes and procedures related to this surveillance."

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $25,000 fine.