A broker-dealer settled FINRA charges for failing to establish, document, and maintain a system of risk management controls and supervisory procedures to manage the financial risks of its direct market access business activity. Specifically, the broker-dealer's controls and supervisory system failed to prevent the entry of orders on at least two trades that (i) exceeded the appropriate aggregate pre-set credit thresholds for each customer and (ii) were erroneous. According to FINRA, the broker-dealer was aware of the potential deficiencies in its financial risk management controls for its direct market access business activity, but it did not take prompt action to address them. As a result of such failures, the broker-dealer violated SEA Rule 15c3-5 ("Risk management controls for brokers or dealers with market access"), FINRA Rule 3110 ("Supervision") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade")
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $650,000 fine, and (iii) comply with the undertakings outlined in the Letter of Acceptance, Waiver and Consent (or "AWC"). FINRA stated that acceptance of the AWC is contingent on the acceptance of similar settlement agreements as to related matters between the broker-dealer and BYX, NYSE and NYSE Arca.
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