GFI Securities agrees to $50,000 fine as a part of settlement with FINRA
From November 2014 to August 2018, GFI failed to maintain a system of risk management controls and supervisory procedures to manage risks related to the provision of access to an ATS.
Broker-dealer GFI Securities LLC has agreed to pay a fine of $50,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
GFI provides its clients with access to to an alternative trading system (ATS). From November 2014 to August 2018 (the “Relevant Period”), GFI failed to establish, document, and maintain a system of risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory and other risks of this business activity.
During the Relevant Period, GFI’s customers routed equity orders to GFI’s traders, who then routed certain of those trades directly to the ARCA or NASDAQ market. For those trades which GFI routed directly to the market, it used a third-party Order Management System (OMS) to manage the equity trading. In addition, during the Relevant Period, GFI also operated an ATS, CreditMatch. Broker-dealers, banks and non-broker-dealers subscribed to CreditMatch, which operated sessions where interested buys and sells were matched.
According to the findings stated in the settlement, during the Relevant Period GFI failed to document its system of risk management controls and supervisory procedures reasonably designed to manage the risk of this business activity, as required under SEA Rule 15c3-5(b). At times during the Relevant Period the Firm’s written supervisory procedures for its Market Access Rule compliance for those trades that it directed to the market through the OMS consisted only of the “off-the-shelf” OMS manual, which identified the various risk management controls available through the OMS.
In addition, at times during the Relevant Period GFI’s market access written supervisory procedures specific to CreditMatch contained only a description of available controls that customers subscribing to the ATS could set. While the firm subsequently revised its written procedures during Relevant Period for both the trades directed to the market through the OMS as well as for CreditMatch, those revisions included only general Market Access Rule requirements and failed to document the firm’s own system of risk management controls and supervisory procedures specifically tailored to those systems.
In addition, from November 2014 to August 2017 GFI established a daily trading capital limit for its equity trading, but failed to document the basis or rationale for that determination. As a result, the firm violated SEA Rule 15c3-5(b).
GFI also failed to establish risk management controls and supervisory procedures reasonably designed to prevent the entry of orders that exceeded appropriate pre-set credit thresholds in the aggregate for each of its customers, as required under SEA Rule 15c3-5(c)(1)(i).
Further, during the period from November 2014 to October 2015, GFI failed to implement systematic pre-trade credit limits for its non-broker-dealer customers in CreditMatch. As a result, the Firm violated SEA Rule 15c3-5(c)(1)(i).
Finally, the Firm failed to conduct an annual review in 2014 to assure the overall effectiveness of its risk management controls and supervisory procedures with respect to CreditMatch, and failed properly to complete the required certification for 2014 that such risk management controls and supervisory procedures complied with SEA Rule 15c3- 5(b)and(c). Thus GFI violated SEA Rule15c3-5(e)(1) and (2).
On top of the fine, GFI has agreed to a censure.