FINRA fines broker $165K for lack of supervisory controls and market access rule violations

Securities FINRA Securities Exchange Act AWC Broker

Recently, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) against a broker providing self-directed, online brokerage services to institutional and retail customers. The broker previously received a $595,000 fine in April 2015 for allegedly failing to supervise potentially manipulative trading and failing to have reasonable market access controls and procedures. This month’s AWC was based on similar alleged conduct, finding from November 2017 to January 2020, the broker allegedly failed to establish a supervisory system prohibiting potentially manipulative trading in violation of FINAR Rules 3110 and 2010. FINRA supervision found the broker implemented a third-party surveillance system without tailoring it to the firm’s business model or order flow, assigned one trader ID number for each customer even when the account had more than one trader, and closed alerts without reasonable follow-up or investigation.

The broker also allegedly violated Section 15(c)3-5 of the Securities Exchange Act, Exchange Act Rule 15c3-5, and FINRA Rule 2010 during that same period by failing to maintain market access controls and procedures. FINRA alleged the broker did not implement a system of controls to set the appropriate credit thresholds for each customer and instead relied on clearing firms. FINRA also alleged the broker failed to provide documentation evidencing how customers’ credit controls were established or designed. Due to these violations, FINRA issued a censure, a $165,000 fine, and a certification in writing that the issues have been remedied within 90 days.