CODA Markets, Inc. (fka PDQ ATS)
The findings stated that the firm failed to develop and implement an AML program reasonably designed to detect and cause the reporting of potentially suspicious transactions and its AML testing and training were not reasonable. The firm’s AML program was not reasonably tailored to the risks of its direct market access business and its AML testing was not reasonable because it failed to assess whether its surveillance reports were reasonably designed to detect potentially suspicious transactions and whether the firm reasonably reviewed the surveillance reports and reasonably investigated potentially suspicious transactions.
The firm’s training failed to address how to identify red flags of suspicious transactions. Even after FINRA notified the firm of this deficiency, its subsequent AML training materials listed red flags of suspicious transactions and instructed personnel to watch for them, without providing any guidance on how to identify such red flags. In addition, the firm did not conduct AML training on at least an annual basis.
The findings also stated that the firm failed to establish, document and maintain financial risk management controls and WSPs reasonably designed to prevent the entry of orders that exceed appropriate pre-set credit thresholds and erroneous orders. The firm’s WSPs did not describe the due diligence to be performed or how credit thresholds should be determined. The firm has never considered a subscriber’s financial condition in determining credit thresholds, contrary to Securities and Exchange Commission (SEC) guidance. As a result, the firm set credit thresholds for certain subscribers that were unreasonably high in light of their financial conditions.
The findings also included that the firm failed to establish, document and maintain a supervisory system reasonably designed to review the effectiveness of its risk management controls and supervisory procedures. The firm’s WSPs did not describe how the review was to be conducted.
Moreover, besides an ad hoc review, the firm did not actually review the effectiveness of its risk management controls and its annual certification records did not describe or document any such reviews. FINRA found that the firm failed to provide annual certifications in compliance with Exchange Act Rule 15c3-5. The firm failed to complete its certifications no later than on the anniversary date of the previous year’s certification.
FINRA also found that the firm failed to reasonably test its WSPs and prepare annual reports summarizing the test results. The firm tested its WSPs in two or three subject areas only, which was not sufficient to verify that the firm’s WSPs were reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable FINRA rules. Furthermore, the firm’s supervisory controls reports did not include a summary of the test results and significant identified exceptions, nor did they detail any additional or amended supervisory procedures created in response to the test results.
