Dealerweb Inc.
Dealerweb was fined $250,000 for not correctly calculating its volume thresholds as a percentage of the overall National Market System market average daily dollar volume and, as a result, did not recognize that it was required to be in compliance with Regulation Systems Compliance and Integrity (Reg SCI) under the Exchange Act.
The findings stated that the firm was required to come into compliance with Reg SCI, however, it did not understand that its alternative trading system was an SCI entity until almost two years later, at which time it initiated a review of its SCI compliance and then fully implemented Reg SCI policies and procedures.
The findings also stated that due to the firm’s misinterpretation of the threshold test, it failed to identify its SCI systems and failed to establish Reg SCI policies and procedures until later. As a result, the firm violated Reg SCI Rules 1001(a), (b) and (c).
The findings also included that the firm did not file quarterly or annual reports with the SEC. The firm did not implement policies and procedures to identify material changes that would have allowed it to comprehensively report those material changes to the SEC, nor did the firm file quarterly reports of material changes to its systems with the SEC.
In addition, the firm did not implement an annual review process and did not conduct an annual SCI review, or submit a report of an annual SCI review to its senior management, its board of directors, and to the SEC. As a result, the firm violated Reg SCI Rules 1003(a) and (b).
FINRA found that the firm did not establish standards for the designation of its SCI alternative trading system’s members necessary to maintain fair and orderly markets in the event of the activation of business continuity and disaster recovery plans related to its alternative trading system and also did not coordinate testing with other SCI entities. As a result, the firm violated Reg SCI Rules 1004(a), (b) and (c).
FINRA also found that the firm did not begin to maintain the books and records required by Reg SCI until after it identified its SCI systems and also did not maintain, keep and preserve all books and records relating to its compliance with Reg SCI. As a result, the firm violated Reg SCI Rule 1005(b) and 2010.
