Four firms have been censured and fined a total of $4.75 million for violations of various provisions of Rule 15c3-5 of the Securities Exchange Act of 1934 (known as the Market Access Rule) and related exchange supervisory rules. The actions were taken by the Financial Industry Regulatory Authority (FINRA), along with Bats, a CBOE Holdings company; The NASDAQ Stock Market LLC; the New York Stock Exchange; and their affiliated Exchanges (collectively, “Exchanges”). The firms involved in these matters are Deutsche Bank Securities Inc., Citigroup Global Markets Inc., J.P. Morgan Securities LLC, and Interactive Brokers LLC.
In settling these matters for the sanctions below, which were apportioned among FINRA and the Exchanges, the firms neither admitted nor denied the charges but consented to the entry of FINRA’s and the Exchanges’ findings.
Between May and July 2017:
- Deutsche Bank was fined a total of $2.5 million.
- Citigroup was fined a total of $1 million.
- J.P. Morgan was fined a total of $800,000.
- Interactive Brokers was fined a total of $450,000.
The SEC’s Market Access Rule requires, among other things, that broker-dealers that access an exchange or an alternative trading system or provide their customers with access to these trading venues must adequately control the financial and regulatory risks of providing such access. The purpose of this requirement is to prevent firms from jeopardizing their own financial condition and that of other market participants, while also ensuring the stability and integrity of the financial system and the securities markets.
The firms involved in these matters collectively provided market access to numerous clients that executed millions of trades per day. Specifically, FINRA and the Exchanges found that the firms failed to comply with one or more provisions of the Market Access Rule, such as by failing to implement financial and regulatory risk management controls and procedures reasonably designed to prevent the entry of erroneous or duplicative orders; prevent the entry of orders that exceeded appropriate pre-set credit or capital thresholds; or supervise customer trading to detect and prevent potentially violative and manipulative activity. Additionally, the firms were found to have failed to comply with their obligations under the supervisory rules of FINRA and the Exchanges to establish and maintain a reasonably designed system, including written supervisory procedures, to supervise the activities of their customers.
“It is important that firms have reasonable market access procedures in place to appropriately monitor for errors and risks that can be harmful to the integrity of our securities markets,” said FINRA and the Exchanges in a joint statement.
When determining the appropriate sanction in the four matters, FINRA and the Exchanges considered the facts and circumstances particular to each matter, including, among other things, the number of erroneous orders that were entered on the Exchanges by the firms, potentially manipulative trading activity that went undetected by the firms, the market impact (both real and potential) of the underlying violative activity, the extent to which red flags were present, the firms’ disciplinary histories, the nature of the supervisory failures, the breadth and duration of the firms’ overall failures, remediation of the problematic conduct, and cooperation provided during the course of the investigations.
The investigations that led to the actions set forth above were conducted by the Department of Market Regulation at FINRA and the Exchanges.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA’s Disciplinary Actions Online database. Investors can also call FINRA’s Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
