SpeedTrader, Inc.
The findings stated that the firm implemented its third-party surveillance system’s default parameters without assessing whether those parameters were reasonably tailored to the firm’s business model, including the type and nature of the firm’s customers’ order flow.
Further, the firm assigned only one trader identification number for each customer account, even when the account had more than one authorized trader. Therefore, the firm could not identify the specific traders responsible for exception alerts, which limited the firm’s ability to effectively review for and supervise potentially manipulative trading.
In addition, the firm closed alerts without reasonable follow up and investigation of the underlying trading, including multiple alerts indicating patterns of suspicious trading by the same customer, and its comments for the alerts were often repetitive and sometimes suggested an apparent misunderstanding of the nature of the trading.
Finally, the firm’s WSPs failed to provide reasonable guidance as to how the firm should review exception alerts to determine whether they were indicative of potential manipulative trading that should be escalated. The firm’s WSPs only directed that each exception alert should be reviewed independently, without explaining what independently meant or providing any additional guidance beyond that directive.
The findings also stated that the firm failed to establish, document, and maintain financial risk management controls and procedures reasonably designed to limit the financial and regulatory risks associated with its market access business activity. The firm did not implement a system or controls to set the appropriate credit thresholds for each customer to which the firm provided market access. Rather than evaluating, setting, and modifying the buying power for its customers, the firm instead relied on its clearing firms to do so.
The firm also failed to provide any documentation evidencing how customers’ credit controls were established or that they were reasonably designed based upon the customer’s business, financial condition, or trading patterns. In addition, the firm did not document that it monitored whether the thresholds remained appropriate, or whether modifications to its credit controls were warranted.
The firm’s annual compliance certifications for three years failed to state that the firm’s risk management controls and supervisory procedures complied with paragraphs (b) and (c) of Rule 15c3-5 of the Exchange Act, as required.
