Evercore Group L.L.C.
The findings stated that the firm provided market access to certain customers and generally assigned them to pre-defined, tiered credit limits based on each customer’s largest notional value trading day for stocks priced over $1 over a two-year period. In doing so, the firm did not sufficiently consider each customer’s business, financial condition, trading patterns, or other information when setting credit threshold controls and frequently set credit limits that were too high to be effective.
The findings also stated that the firm failed to establish, document, and maintain certain reasonably designed erroneous order controls and procedures. The firm maintained single order quantity (SOQ) controls that were too high to prevent the entry of erroneous orders in certain securities. These included maximum share quantity and maximum order value controls, and a control setting the maximum percentage of a security’s average daily volume at 100 percent.
Moreover, the firm used uniform thresholds for all securities and did not consider the characteristics of individual securities. In addition, the firm’s procedures did not explain, or did not adequately explain, its rationale for its decision to set the maximum share quantity and maximum order value limits at these levels.
The firm also assigned certain customers SOQ thresholds that were not reasonable because they exceeded the customer’s aggregate credit threshold.
Further, the firm established a control that limited the maximum percentage away from the National Best Bid or Offer midpoint that a limit order could be priced. However, many of these price limits were not reasonably designed because they were set at prices that exchanges designate as clearly erroneous without related, complementary controls that would address related risks.
In addition, the firm was unable to provide any documentation or sufficient rationale explaining or supporting these limit order price limits.
The findings also included that the firm failed to establish, maintain, and enforce a reasonable supervisory system concerning the documentation of soft block reviews and control limit modifications. The firm’s market access controls applied soft blocks to transactions that breached its risk management thresholds. However, the firm did not have any written procedures for reviewing orders that triggered a soft block. The firm’s procedures did not reasonably describe the steps firm personnel must take when reviewing a subject order or the circumstances under which a soft block may be overridden or confirmed.
The firm also did not, or did not sufficiently, contemporaneously document its review of soft blocks, including documenting the rationale for releasing the subject orders into the market. Furthermore, the firm’s procedures did not reasonably describe how the firm supervises soft block alert reviews and did not specify how the firm’s daily review of “overrides of blocks and alerts” was to be performed or provide other relevant details, such as the specific reports to be reviewed or how reviews should be documented.
The firm also did not review overrides of blocks and daily alerts within a reasonable timeframe. In addition, the firm modified financial risk control parameters to allow orders to be routed without triggering soft block alerts. The firm had no procedures regarding when, and under what circumstances, a control parameter could be modified, and it generally did not maintain documentation relating to control limit modifications.
FINRA found that the firm failed to establish a reasonable system for reviewing the effectiveness of its market access risk management controls and supervisory procedures. The firm did not test to determine whether the controls were effective in appropriately limiting the risk associated with its market access.
