FINRA fines Virtu Americas for failures related to methodology governing order execution
From May 2013 to September 2019, the firm did not maintain a reasonable written methodology governing the execution and priority of all pending orders that it received for handling and execution.
Virtu Americas LLC (f/k/a KCG Americas LLC) has agreed to pay a fine of $125,000 as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).
FINRA has found that, Virtu, which is a one of the largest OTC market makers in terms of dollar, trade, and share volume, did not maintain a reasonable written methodology governing the execution and priority of all pending orders that it received for handling and execution during th period from May 2013 to September 2019 (the “Review Period”).
In particular, during the review period, Virtu maintained a written order handling methodology that described how orders that were subject to Manning would be prioritized and filled via its automated Manning System. The written methodology did not address the methodology for filling orders not subject to Manning and handled manually.
FINRA has found that, during the review period, Virtu executed about 35% of its OTC orders manually outside of the firm’s automated Manning system. However, it did not have a written methodology document addressing order priority for such orders. Given the firm’s size in the OTC market in terms of trade and share volume, the firm’s failure to have a reasonable written methodology document governing order priority for manually executed orders created substantial risk that the firm would not handle manual orders consistently.
There was also no document addressing order priority for manual orders during certain foreseeable market circumstances, such as locked and crossed markets, which can be a common event in the OTC market.
Furthr, certain order types for NMS securities, such as stop orders and certain orders in Nasdaq-listed securities accepted prior to market open for execution at the opening price between 9:28:00-9:29:59, were also handled manually during the review period. The firm’s written methodology also did not address these pending orders.
Through this conduct, Virtu violated FINRA Rules 5320(b) and 2010.
On top of the fine, Virtu also consents to the imposition of a censure and an undertaking to revise the firm’s written methodology.
