Firm Settles NYSE Arca Charges Over Premature Orders and Unauthorized Trading
A firm settled NYSE Arca charges for prematurely announcing orders, trading beyond client instructions, and for related recordkeeping and supervisory failures.
According to the AWC, the firm notified clients that orders had been announced in open outcry before the orders’ full terms and conditions had been communicated to the trading crowd. NYSE Arca found that "over a three-week sample period, on approximately 50 occasions, [the firm] informed a client that orders were announced after [the firm] had received certain terms of the option trade but before [the firm] had received a price from the client for the order." In addition, the firm informed clients that orders had been announced while discussions regarding participation in the trading crowd were still underway.
NYSE Arca found that the firm engaged in trading activity beyond client instructions on the options trading floor. In one instance, the firm received an "order to buy and cross 150 call options [at] $1.62," but after the market moved, it executed the trade at $1.70. When the market later declined, the firm executed a new trade at $1.62 and canceled the earlier $1.70 execution. NYSE Arca stated that because the firm lacked client authorization to execute the trade at the higher price or to nullify it afterward, the firm had effectively traded for its own account.
NYSE Arca also found that the firm failed to maintain accurate records of customer order instructions and modifications. In one instance, the firm executed several trades at different prices while attempting to complete a spread order and later canceled earlier executions after printing the trade at the desired price. The firm did not fully inform the client of all executions and cancellations and failed to properly document the client’s revised instructions. NYSE Arca also determined that the firm lacked a reasonably designed supervisory system, as its written supervisory procedures did not address key order announcement requirements, restrictions on floor brokers trading for their own accounts, or include supervisory reviews to ensure compliance.
NYSE Arca concluded that the firm violated SEA Section 17(a) ("Records and Reports") and Rule 17a-3 ("Records to be made by certain exchange members, brokers and dealers"), as well as NYSE Arca Rules 11.1 ("Adherence to Law and Good Business Practice"), 6.34-O ("Trading by OTP Holders and OTP Firms on the Floor"), 6.68-O ("Record of Orders"), 2.28 ("Books and Records"), 11.16 ("Books and Records"), and 11.18 ("Supervision").
The firm agreed to (i) a censure and (ii) a $95,000 fine.