M1 Finance LLC
The findings stated that the firm violated Regulation SHO Rule 200(g) by incorrectly marking sell orders as long sales, when the orders should have either been (i) split into separate orders, with one order containing shares equal to the firm’s net long position marked as long and a second with the balance of the shares marked as short, or (ii) marked as a single short order.
In addition, the firm incorrectly marked sell orders as executed in an agent capacity, even though a portion of the sell orders (i.e., the buffer and rounded-up quantities) represented shares purchased for the firm’s inventory account executed in a principal capacity.
The firm also incorrectly marked buy orders it effected at the end of each trading window as agent, even though a portion of the buy orders were executed in a principal capacity. As a result, the firm maintained inaccurate memoranda for each of those orders and executions and maintained inaccurate books and records.
The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with Rules 203(b)(1) and 200(g) of Regulation SHO and related recordkeeping rules. The firm’s WSPs required a principal to conduct a daily review of transactions for compliance purposes. However, the WSPs did not provide any additional guidance for how this daily review was to be conducted, such as identifying the individual responsible for the review, specifying the number of trades to be reviewed, or describing what the reviewer should monitor for and what materials the reviewer should use. The firm later implemented WSPs with respect to Rule 200(g)’s order marking requirement.
The WSPs did not address review of the firm’s trading activity or related records, and the firm did not implement any systems, surveillance or reviews to monitor its compliance with applicable locate, order marking, and recordkeeping rules.
