Cboe Exchanges Sanction General Securities Principals For Direct Market Access Violations

The Cboe BYX, Cboe EDGA, Cboe EDGX and Cboe BZX exchanges filed separate disciplinary actions against two general securities principals ("GPs") for failing to confirm that a market access control vendor and customer were interdependent from one another.

According to the exchanges, the GPs, who at separate times served as the CEO and CCO of a registered broker-dealer firm, were presented with a "potentially lucrative" package deal by a market access control vendor which involved receiving order flow from an unaffiliated broker-dealer and an unregistered foreign-day trading entity. However, the exchanges claimed that the GPs did not conduct "appropriate due diligence," as required under SEA Rule 15c3-5 ("Risk management controls for brokers or dealers with market access."), in determining whether the foreign-day trading entity and vendor were interdependent from one another. The exchanges stated that the GPs should have been alerted to a potential conflict of interest after receiving emails that the foreign-day trading entity and vendor were under the same ownership. Despite their lack of due diligence, the exchanges purported that the GPs still followed through on conducting the direct market access business, pursuant to the package deal proposed by the vendor.

The GPs also failed to implement proper supervisory systems and procedures that would have monitored market access practices by the firm.

To settle the charges, the exchanges imposed a (i) censure, (ii) principal bar, (iii) 12-month suspension and (iv) total fine of $75,000 against the GP who acted as CEO and CCO during the time that the market access vendor deal was proposed. Separately, the exchanges imposed a bar in all capacities against the second GP.

Primary Sources

1. Cboe BYX Exchange, Inc., Disciplinary Decision: Douglas A. Sanzone
2. Cboe BYX Exchange, Inc., Letter of Consent: John Grifonetti
3. Cboe EDGA Exchange, Inc., Disciplinary Decision: John Grifonetti
4. Cboe EDGA Exchange, Inc., Disciplinary Decision: Douglas A. Sanzone
5. Cboe EDGX Exchange, Inc., Disciplinary Decision: Douglas A. Sanzone
6. Cboe EDGX Exchange, Inc., Disciplinary Decision: John Grifonetti
7. Cboe BZX Exchange, Inc., Disciplinary Decision: Douglas A. Sanzone
8. Cboe BZX Exchange, Inc., Disciplinary Decision: John Grifonetti

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