Firm Settles Cboe Charges for Surveillance Data Failures

A firm settled Cboe Exchange, Inc. charges for failing to maintain an adequate supervisory system to monitor for potentially manipulative trading.

According to the Letter of Consent, during the relevant period, the firm’s automated surveillance systems relied on data feeds that were significantly incomplete. The exchange found that a global proprietary database used by the firm failed to process approximately 480 million trade, order, and position records, diverting them instead to an unreviewed "electronic repository known as the Orphan File." The exchange said that a software update to an order management system caused the omission of data regarding approximately 440 million equity trades.

Cboe found that these data gaps prevented the firm from detecting and investigating numerous instances of potentially violative activity, including spoofing, layering, wash trades, and the misuse of material non-public information. The exchange said that despite internal audits warning of data quality issues—and an outside consultant recommending the replacement of the faulty database—the firm did not substantially complete the replacement in a timely manner.

The exchange found that the firm violated Cboe Rule 8.16 ("Supervision"). 

The firm agreed to (i) a censure and (ii) a $445,312.50 fine.