A market maker and provider of execution services, settled FINRA charges for automated control failures on its OTC equity trading desk (the "OTC Desk").
According to FINRA, the firm instituted automated controls regarding order protection, quote display, and execution in order to comply with securities regulations concerning trading ahead and the display of limit orders. The implementation of such controls removed hundreds of thousands of customer orders (mostly larger customer orders), rendering such orders inactive until the completion of manual review by traders. FINRA alleged that the firm traded ahead of such inactive orders, violating FINRA Rule 5320 ("Prohibition against Trading Ahead of Customer Orders").
FINRA also charged the firm with violating Rule 6460 ("Display of Customer Limit Orders") by not properly displaying the orders. FINRA added that the firm did not establish a supervisory system and written supervisory procedures reasonably designed to achieve compliance with FINRA Rules 5320 and 6460, in violation of FINRA Rule 3110 ("Supervision") and Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure, (ii) a $700,000 fine and (iii) compliance with the undertakings set forth in the FINRA Letter of Acceptance, Waiver and Consent.
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