Firm Settles FINRA and NYSE American Charges for Market Access Failures

A firm settled separate FINRA and NYSE American charges for failing to comply with market access risk management rules and for failing to reasonably supervise for potentially manipulative trading.

In two AWCs (see here and here), FINRA and NYSE American found that the firm, among other things:

• failed to establish risk management controls reasonably designed to manage financial risks, setting "customer credit limits at 120%" of prior usage without documenting the rationale or providing guidance on exceptions;
• ignored unreasonably designed erroneous order controls, including average daily volume controls set on a customer-specific basis with thresholds as high as 5,000% of prior volume that only applied to orders with notional values greater than $1,000,000;
• failed to reasonably surveil for manipulative trading, including "pre-market spoofing," "marking the close," and "ramping";
• closed "approximately 98 percent of 3,800 pre-market spoofing alerts" without substantive review; and
• utilized unreasonable surveillance parameters to flag manipulative trading, such as "marking the close" controls limited to the final second of trading and "ramping" alerts that required "a client [to] execute at least 30 trades in a symbol within 60 seconds."

The regulators found that the firm violated Exchange Act Rules 15c3-5 ("Risk management controls for brokers or dealers with market access"), FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade"), and NYSE American Rules 3110 ("Equities. Supervision").

To settle the charges, the firm agreed to (i) a censure and (ii) pay $178,027 to FINRA and $62,730 to NYSE American. Both regulators noted that the matters were resolved simultaneously with similar matters for a total fine of $1,200,000.