Finra fines Wedbush Securities for inadequate trade monitoring
The Financial Industry Regulatory Authority continues to take disciplinary actions against financial services firms for failing to ensure they had appropriate systems and controls in place to detect market abuse.
Today, the industry’s self-regulatory authority ordered Los Angeles-based Wedbush Securities Inc, a provider of private and institutional brokerage in the US, to pay a fine of $975,000 for various lapses over a period of at least seven years.
An investigation by Finra found that Wedbush has provided customers with access to third-party electronic trading platforms, However, the broker dealer didn’t monitor customers’ trading activity, which increased the risk that potentially suspicious trading, including layering, spoofing, and wash sales, would go undetected.
Instead, the firm relied upon the third-party broker-dealers to conduct such reviews. Also, since June 2015, Wedbush failed to supervise the trading activities of its proprietary traders and other firm customers for potential layering and spoofing.
The firm’s flawed implementation led to significant gaps in addressing the risk of market abuse. Specifically, Wedbush failed to detect suspicious activity of an institutional customer in 2017. Over the course of two months, FINRA surveillance identified 2,900 layering exceptions involving over 130 stock symbols associated with the customer’s order flow.
In March, the executing broker dealer detected the potential layering by this client and provided a notice to Wedbush, which then closed his trading account. Wedbush, however, did not take any steps to spot potential and attempted market abuse across a wide scope of markets and financial instruments. As a result, nearly 90 customers opened more than 3.4 million transactions involving 13.5 billion shares without being subject to any checks.
“Wedbush mistakenly believed that it was not required to review this trading for any type of potentially manipulative activity since it was no longer providing market access. Instead, the firm believed that the obligation to review this trading for potentially manipulative activities rested solely with the executing broker-dealers. Thus, since June 2015, the firm did not conduct any supervisory reviews of the trading activities by its electronic trading customers for potentially manipulative trading, such as layering, spoofing, wash sales, or marking the close or open,” the statement reads.
Founded in 1955, Wedbush Securities provides futures Execution and Clearing services to the world’s major futures exchanges, supporting a variety of clients, including non-clearing FCMs, introducing brokers, professional traders and institutions.