Laidlaw & Company (UK) Ltd.
Further, although questions about the firm’s WSPs could be raised with compliance staff, the WSPs did not specify the circumstances under which a branch manager should escalate potentially manipulative activity or the manner in which that escalation should occur or be documented.
In addition, the firm did not provide branch managers with any tools, such as exception reports or other electronic surveillance, designed to detect potential matched trades, cross trades or other forms of potential market manipulation, such as marking the close. The manual review of orders conducted by branch managers was not reasonably designed to detect potential market manipulation given the sheer volume of trading and the branch managers’ daily review of blotter activity was not reasonably designed to detect and prevent manipulation that spanned multiple days.
Moreover, the branch managers were only tasked with reviewing daily trade activity in their respective branches and no one at the firm was tasked with reviewing trades for potential manipulative activity across the firm’s branches.
The findings also stated that the firm failed to detect numerous red flags of potential market manipulation involving shares of an investment banking client of the firm, whose shares did not trade on a national exchange. Although firm customers accounted for a substantial percentage of the daily trading volume on numerous days, the firm did not detect and, therefore, did not review or investigate multiple occasions when firm representatives effected cross trades in the client’s shares across customers’ accounts.
Similarly, the firm failed to detect instances of potential marking the close, including multiple occasions when orders to purchase the client’s stock were entered, either in customer accounts or representative accounts, within the last ten minutes of the trading day at prices at or above the previous trading price.
The findings also included that the firm and its principal failed to preserve and maintain certain books and records, and as a result, the firm violated Section 17(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 17a-4 thereunder. Firm personnel, including its principal, routinely communicated with each other and with customers regarding firm business by text message using their personal mobile phones. The Principal was aware that individuals he supervised also engaged in this practice. Firm personnel, including its principal and the individuals he supervised, did not send these text messages to their supervisors or the firm’s compliance department to be reviewed and retained and the firm did not otherwise retain these business-related electronic communications.
The suspension of the Principal is in effect from August 2, 2021, through October 1, 2021.
