Alterna Securities, Inc.
The findings stated that the firm did not have exception reports, trade alerts, or other supervisory mechanisms to identify pre-arranged transactions. Instead, the firm relied on its supervisors to identify such transactions as part of their daily review of transactions on a fixed income trade blotter. However, the firm’s trade blotter was organized by customer account and did not provide the time that transactions were executed and was therefore not a reasonable mechanism to review or identify potential pre-arranged trading.
Moreover, the WSPs provided no information or guidance to supervisors as to how to review for pre-arranged trading, what information to identify or evaluate in conducting such a review, or what steps were required to address indications of pre-arranged transactions.
Finally, while the firm’s WSPs designated a firm principal as the person responsible for supervising fixed income transactions for compliance with the firm’s WSPs, including those regarding potentially manipulative trading, they did not designate a supervisor responsible for the supervision of fixed income transactions effected by that principal.
The designated principal effected 35 pairs of pre-arranged transactions in corporate bonds. In each transaction, that principal sold corporate bonds, from either the firm’s inventory or on behalf of a firm customer, to another broker-dealer and then bought the same bonds back, usually within five minutes, from the same broker-dealer on behalf of other firm customers. Because the firm had no surveillance system reasonably designed to detect pre-arranged transactions, and because no supervisor had been designated to supervise the principal’s trading activity, none of the principal’s transactions were flagged for supervisory review at the firm.
