Firm Settles FINRA Fees for Intermarket Sweep Order Violations Finance & Banking

United States: Firm Settles FINRA Fees for Intermarket Sweep Order Violations

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A broker has paid FINRA fees for violating regulations and Intermarket Sweep Orders (“ISO”) monitoring rules.

In an acceptance, waiver and consent letter, FINRA found that the firm allegedly violated Rule 242.611(c) (“Order Protection Rule: Intermarket Sweep Orders”) of SEC NMS Regulation, which requires brokers to take “reasonable steps” to ensure that routed ISO orders meet the definitions set out in Rule 242.600(b)(30) (“Effective Transaction Reporting Plan”). FINRA said orders that did not meet those definitions were not routed against protected quotes from other exchanges. FINRA accused the firm of violating the “reasonable steps” requirement by failing to (i) notify its compliance department that it was routing the ISOs, (ii) develop policies and procedures to comply with ISO regulations and (iii) retain company-specific quote data or conduct periodic reviews to prevent out-of-process transactions. FINRA found this to be contrary to FINRA Rule 2010 (“Standards of Trading Honor and Principles of Trading”).

Additionally, FINRA said the company incorrectly marked immediate or canceled (“IOC”) orders as ISOs. While fixing a coding issue to fix this, it created another error, causing IOC commands to be routed instead of ISOs. Again, FINRA determined that the firm failed to take “reasonable steps” to ensure the accuracy of its routed ISOs.

As a result of these alleged violations, FINRA also asserted that the firm’s monitoring system was not reasonably designed to ensure compliance with Rule 611, thereby violating FINRA Rule 3110 (“Supervision”). .

In settling the charges, the broker agreed to (i) censure and (ii) a fine of $200,000, of which $42,765 is payable to FINRA.

Primary sources

  1. AWC FINRA: Jefferies LLC

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