A broker-dealer settled FINRA charges for violations of intermarket sweep order ("ISO") regulations and supervisory rules.
In a Letter of Acceptance, Waiver and Consent, FINRA found that the firm allegedly violated Rule 242.611(c) ("Order Protection Rule: Intermarket Sweep Orders") of SEC Regulation NMS, which requires broker-dealers to take "reasonable steps" to ensure that routed ISO orders meet the definitions set by Rule 242.600(b)(30) ("Effective transaction reporting plan"). FINRA stated that orders that failed to meet these definitions were not routed against other exchanges' protected quotes. FINRA charged the firm with violating the "reasonable steps" requirement by failing to (i) inform its compliance department that it was routing ISOs, (ii) develop policies and procedures for complying with ISO regulations and (iii) maintain firm-specific quotation data or conduct periodic reviews to prevent trade-throughs. FINRA found this violative of FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
Additionally, FINRA stated that the firm incorrectly marked immediate-or-cancel ("IOC") orders as ISOs. In fixing a coding issue to address this, it created another error, resulting in the routing of IOC orders instead of ISOs. Again, FINRA determined that the firm failed to take "reasonable steps" to ensure the accuracy of its routed ISOs.
As a result of these alleged violations, FINRA also asserted that the firm's supervisory system was not reasonably designed to ensure compliance with Rule 611, thereby violating FINRA Rule 3110 ("Supervision").
In settling the charges, the broker-dealer agreed to (i) censure and (ii) a $200,000 fine, with $42,765 payable to FINRA.
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