FINRA fines Virtu Americas for failure to provide best execution

Maria Nikolova

During the period of September 1, 2015 through August 21, 2017 Virtu failed to provide best execution with respect to 13,136 customer orders.

Virtu Americas LLC (f/k/a KCG Americas LLC) has agreed to pay a fine of $175,000 as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).

The rule violations occurred during the period of September 1, 2015 through August 21, 2017. During the Review Period, Virtu failed to provide best execution with respect to 13,136 orders it had received that were customer orders of another broker-dealer, by failing to use reasonable diligence to ascertain the best market for the subject securities and by failing to buy or sell in such market so that the resultant prices to the customers were as favorable as possible under prevailing market conditions.

Specifically, on September 1, 2015, the firm began accepting orders for execution outside of normal trading hours, as early as 4:00 a.m. Normal trading hours are from 9:30 a.m. until 4:00 p.m. ET. At the request of two of its broker-dealer clients, the firm accepted orders that were routed earlier than 8:00 a.m. and 8:15 a.m. respectively, but delayed the release of these orders for execution until 8:00 a.m. and 8:15 a.m. respectively (“hold and release” orders).

The firm’s order management system is designed to handle hold and release orders by first crossing any buy and sell orders that were marketable against each other at the midpoint of the National Best Bid and Offer (NBBO), and then, once the crossing process is completed, hold and release orders were released for execution by the firm’s electronic market making systems.

During the Review Period, due to a programming error in the firm’s order management system, certain hold and release orders were executed by the firm’s electronic market making systems prior to the completion of the crossing process. The hold and release orders were received and executed outside of normal trading hours, and were marketable against each other and designated by each customer for execution at the same time, but were not executed against each other at the NBBO midpoint. Instead, the firm executed such eligible buy and sell orders separately, on a principal basis, at the NBBO or a price that was better than the NBBO but that was at prices less favorable than the NBBO midpoint.

This programming error affected 13,136 hold and release orders, all of which were entered by two of the firm’s broker-dealer clients. The difference between the execution price of the 13,136 orders and the NBBO midpoint at the time of each order’s execution amounted to $164,137.70 in customer harm.

The firm took corrective action by implementing a temporary fix on August 21, 2017, and thereafter permanently fixed the programming error at the end of 2017.

FINRA notes that the firm paid full restitution to the two introducing broker-dealer clients affected by the programming error during the Review Period.

During the Review Period, the firm failed to establish and maintain a supervisory system designed to achieve compliance with FINRA Rule 5310 for customer orders executed outside of normal trading hours in violation of FINRA Rules 3110 and 2010.

On top of the fine, Virtu agrees to a censure.

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