BrokerDealer.com blog post courtesy of extract from tradersmagazine.com and John D’Antona Jr.
The Financial Industry Regulatory Authority (FINRA) announced Monday that it has filed a complaint against Los Angeles-based Wedbush Securities Inc. for systemic supervisory and anti-money laundering (AML) violations in connection with providing direct market access and sponsored access to broker-dealers and non-registered market participants.
During the period at issue, Wedbush was one of the securities industry’s largest market access providers, which included overseas high-frequency, high-volume, algorithmic day-trading firms, and made millions of dollars from its market access business.
The complaint alleges that from January 2008 through August 2013, Wedbush failed to dedicate sufficient resources to ensure appropriate risk management controls and supervisory systems and procedures. This enabled its market access customers to flood U.S. exchanges with thousands of potentially manipulative wash trades and other potentially manipulative trades, including manipulative layering and spoofing.
Despite its obligations to monitor, review, and detect suspicious and potentially manipulative trades, Wedbush largely relied on its market access customers to self-monitor and self-report such trading without sufficient oversight and controls to detect “red flags.”
FINRA also alleges that despite receiving notice of regulatory and compliance risks associated with its market access business – including published industry-wide notices, disciplinary decisions taken against other industry participants and multiple self-regulatory organization inquiries and examinations – Wedbush’s regulatory risk management controls and supervisory procedures were not reasonably designed to manage such risks, and, in fact, created incentives that rewarded Wedbush compliance personnel with compensation based on market access customer trading volume. Additionally, the complaint alleges that the firm failed to establish, maintain and enforce adequate AML policies and procedures, and failed to report suspicious and potentially manipulative transactions.
The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States.