Large BD Failed to Remedy Mini-Flash Crashes
A large broker-dealer agreed to pay $12.5 Million to settle charges that it violated the market access rule (15c3-5). The SEC charges that senior executives had discretion to set pre-trade controls at levels that allowed significant erroneous orders to reach the exchanges. In several cases over a 3-year period, erroneous orders caused mini-flash crashes in the affected security. Despite these events, which should have been red flags, the SEC faults the respondent for taking no action to address the market access until contacted by SEC staff.
OUR TAKE: This is the type of breakdown that can easily occur at large firms where compliance is left to individual business units, and no designated person has overall responsibility to monitor trading practices.