GTS Securities LLC

GTS Securities LLC was fined a total of $100,000 for routing erroneous orders to the market that were generated through the firm’s trading engine by some of the firm’s trading algorithms.

The findings stated that the firm deployed a technology change to its trading engine that resulted in its outgoing orders for the algorithms not containing a market maker peg order (MMPO) instruction. The orders triggered the firm’s price band risk control, that, in turn, triggered internal rejection alerts and prevented the orders from being sent to the market.

However, the firm manually disabled the control for the algorithms to allow the orders to be sent to the market, based on a failure to detect the impact of the technology change on its MMPOs and a mistaken conclusion that the price band risk control was malfunctioning. Of the 635 erroneous orders, 348 received partial or full execution for a total notional value of over $1.5 million.

In addition, 33 trades were busted, including seven by NASDAQ. The remaining erroneous orders were not executed because the firm detected that they were erroneous after routing them and halted them.

The findings also stated that the firm failed to establish, document, and maintain reasonable risk management controls and procedures to prevent the entry of erroneous orders.

The firm’s price band risk control was not reasonably designed to prevent the entry of erroneous orders with respect to standard limit orders generated by the trading algorithms relevant to the erroneous orders and certain additional trading algorithms routing to the NASDAQ exchanges.

The price band risk control parameter set by the firm was not reasonably designed to prevent the entry of erroneous orders because it was substantially higher than the parameters maintained by the national securities exchanges to review for clearly erroneous transactions, and the firm did not provide a reasonable rationale supporting the firm’s threshold.

Further, until later when it enhanced its procedures, the firm had no written policies, procedures, or controls regarding the process and criteria for overriding or disabling a market access risk control, including the circumstances under which firm personnel could disable the firm’s price controls.

Full details are contained herein.