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A broker-dealer settled Nasdaq Stock Market LLC ("Nasdaq") charges that its "market access" controls were deficient.
In a Letter of Acceptance, Waiver and Consent, Nasdaq found that the firm's only size control over single orders was a "maximum share count" control that was, by itself, "too large to be reasonably designed to prevent the entry of erroneous orders," and that failed to account for individual securities' price or trading characteristics. This deficiency resulted in the firm sending a 50,000-share order to Nasdaq rather than evaluating the order on a volume-weighted average price basis, ultimately resulting in trade executions that were up to 5.55 percent away from the National Best Bid and Offer ("NBBO"). Nasdaq also found that the firm's only single order price control was a "maximum price variance" control of 20 percent from the NBBO which was uniformly applied to all securities without consideration of a security's reference price.
In addition, Nasdaq found that the firm's supervisory procedures over market access controls was lacking. Specifically, while the broker-dealer provided regulatory required certifications that annual reviews of its market access controls were completed, the broker-dealer did not provide any evidence showing "the specific supervisory steps taken, and reviews undertaken, to ensure that it performed the annual review." Moreover, FINRA found that the broker-dealer's written supervisory procedures (i) did not include any policies or procedures detailing the steps required for traders with respect to soft block reviews, and (ii) did not document "the reason why an order that had triggered a soft block was subsequently released and routed to an exchange."
Nasdaq determined that the firm violated Section 15(c)(3) ("Use of Manipulative or Deceptive Devices; Contravention of Rules and Regulations") of the Exchange Act, SEA Rule 15c3-5 ("Risk Management Controls for Brokers or Dealers with Market Access"), and Nasdaq Rules 3010 and General 9, Section 20 ("Supervision"), and 2010A and General 9, Section 1(a) ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure and (ii) a $62,500 fine.
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