Puma Capital, LLC
The firm relied on its order management system (OMS) to route ISOs when filling an order out of the firm’s inventory that would trade through a protected quote at another venue. The firm used a broker-dealer that provided electronic equity routing and execution services on an agency basis (Broker-Dealer A) when it needed to route ISOs to venues to which the firm did not have direct access.
The firm would identify the venue to which the ISO should be directed by Broker-Dealer A in a field (Field 1) in the electronic message that it sent to BrokerDealer A. At times, due to a coding issue in the firm’s OMS, the venue identified by the firm in Field 1 was left blank in the electronic messages the firm sent to BrokerDealer A for newly-added venues. Therefore, although the firm was directing ISOs to the newly-added venues, Broker-Dealer A never received those directions. As a result, the ISOs that the firm directed to these newly-added venues were executed in Broker- Dealer A’s dark pool rather than as ISOs on the newly-added venues and the firm traded though protected quotes.
The firm became aware of this coding issue after receiving an inquiry from a customer and fixed the issue as to a venue. Yet the firm did not implement a process, including any WSPs, to determine whether ISOs were routed to and executed on the venue to which they were directed.
Due to the firm’s lack of such a process, when the same coding issue occurred as to three other newly-added venues, the firm did not detect that the coding issue had recurred until it received error messages from a third party indicating that the firm’s orders contained routing order errors. Although the firm attempted to send ISOs to these venues, none of the ISOs reached their intended destinations because Field 1 was blank when Broker-Dealer A received the ISOs, causing trade throughs.
Ultimately, the firm fixed the coding issue. However, the firm still did not implement a process, including any WSPs, to determine whether its ISOs were being received and executed on the intended exchanges. Broker-Dealer A released an update to its order routing system that inadvertently caused Broker-Dealer A to stop appending order execution instructions to ISOs that the firm directed to the execution venues.
As a result, the firm’s ISOs failed to be executed as intended, which caused the firm to trade through protected quotes. The firm failed to identify these trade-throughs. Subsequently, the firm began obtaining a report from Broker-Dealer A that identified the exchanges to which the firm’s ISOs were delivered for execution.
