Wedbush Securities

Wedbush Securities was fined $425,000 for failing to comply with Rule 606 of Regulation NMS of the Exchange Act in that the firm published Rule 606 reports that excluded equity and options orders in NMS securities due to data integrity issues. As a result, the reports also contained inaccurate percentages of the firm’s non-directed equity and options orders.

The firm also published Rule 606 reports that did not provide an accurate list of the firm’s execution venues for options orders and omitted other required information concerning those execution venues. Specifically, the reports misidentified one broker-dealer as an execution venue. The reports also failed to disclose material aspects of the firm’s relationships with any of its execution venues, including payment for order flow arrangements.

 Furthermore, the firm failed to make its Rule 606 reports available within one month after the end of the preceding quarter. The firm has since remediated the identified data integrity issues and has been timely in making its Rule 606 reports available.

In addition, the firm failed to notify customers in writing, on at least an annual basis, of information available to them in Rule 606 reports. The findings also stated that the firm published monthly reports regarding its execution of covered orders that contained inaccurate order data or were not timely published. In the firm’s capacity as a market center, it received covered orders reportable under Rule 605. The firm published monthly Rule 605 reports that did not report statistical information on those covered orders and instead inaccurately stated the firm had zero covered orders.  After discovering the reporting inaccuracies, the firm republished its monthly Rule 605 reports for that period. However, these reports were also inaccurate because they included hundreds of orders not covered under Rule 605 because the orders were subject to special order handling instructions.

The findings also included that the firm failed to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with Rules 605 and 606 of Regulation NMS. The firm did not have any system in place to supervise its Rule 606 reports or the third-party vendors it used to prepare those reports.

The firm also had no processes or procedures to review the accuracy of order data or other information contained in the Rule 606 reports.

In addition, the firm failed to update its Rule 606 WSPs to address the Securities and Exchange Commission’s (SEC) 2018 regulations that require more detailed disclosures, particularly regarding payments per order, until almost two years after they went into effect. The firm then revised its WSPs to address the SEC’s amended regulations and require, among other things, the firm to review the accuracy of its Rule 606 reports.

Separately, the firm failed to perform any supervisory reviews to verify the accuracy of the firm’s Rule 605 reporting.