Proprietary HFT Firm Pays $8 Million to Settle SEC Charges
A high-frequency proprietary trading firm agreed to pay over $8 Million in fines and disgorgement because it failed to properly supervise its trading systems that placed unlawful trades as a result of software coding errors. According to the SEC, the IT team housed at the firm’s parent company included code that ultimately led to improper trade routing over a 4-year period. The SEC charges the firm with failing to prevent the coding mistakes or having policies and procedures in place to discover the unlawful trading activity, which was ultimately discovered by FINRA. The SEC charges the firm with violating Rule 15c3-3 which requires firms with market access to have “direct and exclusive control” over their risk controls.
OUR TAKE: Although the SEC has proposed registration for proprietary trading firms (see http://blog2.cipperman.com/2015/03/sec-proposes-registration-for-proprietary-trading-firms/), it will use its current authority to regulate through enforcement of its market access rules. The SEC has brought several “Michael Lewis” actions against HFT firms since his publication of Flash Boys about high-frequency traders.