A broker-dealer settled NYSE Arca, Inc. ("NYSE Arca") charges for the improper allocation of trades.
In a Letter of Acceptance, Waiver and Consent, NYSE Arca found that, from January 8, 2019, through December 31, 2019, the firm failed to reasonably supervise its former co-founder and president's trading activities over accounts that he actively traded on behalf of the firm or its affiliates, his customers and himself ("EW Accounts"). NYSE Arca charged that the individual improperly handled order and post-execution trade allocations that created conflicts of interest for the EW Accounts. The firm had previously been sanctioned for the same failures by NYSE Regulation in the beginning of 2019.
NYSE Arca found that during the relevant period, the firm allowed its former president to trade on the EW Accounts without adequate procedures to supervise the order entry, or trade executions or allocations. Further, the exchange found that the firm also used an order management system that did not assign orders to specific EW Accounts before execution and did not interface directly with the firm's back-office system. Additionally, the former president's assistant manually inputted account allocations for trades at the former president's direction that the former president then executed once the trades occurred. As a consequence, the exchange found that the firm inaccurately marked a subset of principal orders in certain proprietary accounts.
NYSE Arca concluded that the firm did not have a documented or approved method for determining trade allocations for executed orders in the EW Accounts, and that it did not have an independent mechanism to assess allocation appropriateness.
NYSE Arca also noted that the firm's lines of supervision over its former president prior to October of 2019 was only subject to minimal monitoring that did not include his improper order handling or trade allocation practices. The exchange highlighted that none of the firm's supervisors had a complete view of the firm's trading that would have revealed the continued violative conduct following the January 2019 settlement.
As a result, NYSE Arca found that the firm allegedly violated NYSE Arca Rules 11.18 ("Supervision"), 11.1(b) ("Adherence to Law and Good Business Practice") and 9.2010-E ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the broker-dealer agreed to (i) a censure, and (ii) a $500,000 fine.
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