E*TRADE Securities LLC

E*TRADE Securities was fined a total of $350,000 for failing to establish and maintain a supervisory system reasonably designed to detect potentially manipulative trading by its customers. The firm was also required to submit to FINRA a representation that it has implemented a supervisory system reasonably designed to detect potentially manipulative trading activity.

The findings stated that the firm’s system for monitoring trading conducted through its platform relied on automated surveillance reports to detect various forms of potentially manipulative trading by its customers. However, this supervisory system was not reasonably designed with respect to detecting potentially manipulative trading involving wash trades, prearranged trades and marking-the-close.

Certain of the firm’s reports used parameters that significantly restricted their ability to detect potential wash trades and prearranged trades, particularly in lower-priced and thinly traded securities.

In addition, the firm modified surveillance parameters in its reports in a way that rendered them too restrictive to reasonably detect potential marking-the-close activity, especially in lower-priced securities.

The findings also stated that the firm did not have surveillance reasonably designed to detect trading that artificially increased or decreased the price of thinly traded stocks, such as when a customer attempted to artificially influence the price of a security by effecting a series of buy transactions within a short period of time to create the false appearance of trading interest and activity in the security, followed shortly thereafter by transactions on the opposite side of the market to reap profits from an artificially increased price.

Further, while the firm used surveillance reports to detect potential intraday manipulative trading, the parameter settings of these reports were not reasonably designed to detect trading that artificially increased or decreased the price of thinly traded stocks.