Sagetrader, LLC

Sagetrader, LLC was fined a total of $775,000 for failing to reasonably supervise for potentially manipulative trading on its platforms. The findings stated that the firm’s supervisory system, including WSPs, was not reasonable in several respects.

First, the firm did not conduct any supervisory reviews for potentially manipulative trading, such as layering, spoofing, wash trades, or marking the close or open.

Second, the firm implemented an automated surveillance system that generated post-trade alerts for potential spoofing, layering, wash trades, and marking the close but that system did not initially surveil for marking the open. Also, due to a coding error, the system did not capture the trading activity of individual traders of one of the firm’s high-risk customers.

Third, the firm’s review of the alerts was not reasonable and its first-level reviewers were permitted to close surveillance alerts for potentially manipulative trading without any oversight or supervision by a firm principal.

Fourth, the firm’s WSPs failed to provide reasonable guidance on how to review for potentially manipulative trading. The firm’s WSPs required reviewers to escalate significant alerts to an alert review committee. However, the firm’s procedures did not explain what qualified as a significant alert. Nor was it clear what additional steps the reviewers should take when reviewing alerts.

Fifth, the firm’s supervisory system was unreasonable because while the firm focused on resolving individual alerts generated by each separate trader at each customer, and terminated some individual traders, the firm did not have a system in place to consider the total alerts generated by multiple traders at the same customer in order to evaluate the aggregate regulatory risk presented by a customer’s overall trading activity.

Sixth, the firm identified two customers as high risk, which, according to the firm, required enhanced surveillance. But the firm had no system or procedures for conducting enhanced surveillance and, in fact, did not do so.

Finally, the firm did not routinely document the alert reviews it conducted, and for the alert reviews that it did document, the documentation was not always sufficient.