Wolverine Execution Services, LLC
The findings stated that the firm engaged in riskless principal transactions for customers in which it incorrectly entered those orders in the same manner in which it had received them, such that if it received an order to sell long, it would enter a sell long order into an exchange, even if the firm was not actually long. The firm’s supervisory system, including its WSPs, was not reasonably designed to achieve compliance with Regulation SHO Rule 200(g). In addition, the firm’s supervisory system, including its WSPs, failed to address how it would supervise for compliance with Regulation SHO Rule 200(g) marking requirements for orders that it executed in a riskless principal capacity.
Furthermore, the firm failed to document compliance with the locate requirement. The firm relied on its clients to attest that they had a locate for short sales, and configured its order management system so that when a client entered a short sale order, an electronic window prompt requested that the client attest that it met the locate requirement and allowed the customer to provide related information. If a client did not affirm that client has a locate, the trade would not be routed. The firm failed to retain records reflecting the client attestations or other documentation reflecting the reasonable grounds for the client’s attestation.
The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with locate requirements. The firm failed to address the requirement that it document compliance with the locate requirement and maintain those documents. Although the firm would periodically verify that the attestation function was operating properly, it failed to keep records of its customers’ attestations or other documentation reflecting the reasonable grounds for the client’s attestation.
The findings also included that the firm failed to report or submitted incorrect reports to the FINRA Trade Reporting Facility® (TRF). The firm failed to submit a regulatory report on the second leg of riskless principal transactions to the TRF, incorrectly reported the execution price in its non-regulatory clearing report to the appropriate TRF, incorrectly reported the execution price in its non-regulatory clearing report to the TRF, incorrectly reported the execution price, execution quantity and the special trade code in its non-regulatory clearing report for step out transactions to the TRF and failed to submit a regulatory report on the second leg of a riskless principal transaction to the TRF and incorrectly reported the execution price, execution quantity and special trade code in its non-regulatory clearing report to the TRF.
In addition, the firm’s supervisory system, including its WSPs, failed to review for compliance with its TRF reporting obligations. Although the firm had WSPs regarding riskless principal transactions, these WSPs centered on determining whether the fees and markups/markdowns charged to clients were appropriate, and not reviewing whether the riskless principal transactions were being accurately reported to the TRF. The firm’s WSPs did not contain procedures relating to its TRF reporting obligations.
FINRA found that the firm failed to meet its OATS reporting obligations pertaining to order data transmission requirements. The firm failed to report the correct routing method code, the limit price, and the correct routing method code. The firm also incorrectly reported the execution timestamp, Intermarket Sweep Orders, the routing method code, route price and routed order type flag. The firm also failed to report the limit price and the limit on open special handling instruction. In addition, the firm failed to meet its obligations pertaining to recording and preserving order event information. The firm failed to memorialize the Routed Order ID, and order time in milliseconds; failed to memorialize in its order records cancel replace information, route information, or cancellation of the order; failed to memorialize the event times in its order records; failed to memorialize its Order ID in its order records; incorrectly memorialized the event times in its order records and failed to memorialize the Routed Order ID and cancellation of the order; and failed to memorialize the route information in its order records.
The firm also failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with OATS reporting requirements. In particular, the daily reviews focus only on ensuring that reporting is complete with no rejections or unmatched trades.
Similarly, the firm’s quarterly reviews failed to ensure that its OATS reports contained the information required by applicable FINRA rules. Although the firm’s WSPs include references to OATS reporting generally, they do not include procedures governing the recording of the OATS data. Moreover, the firm’s supervisory system was inadequate in that it failed to ensure that the data recorded and submitted to OATS was based on, and compared to, the source documentation that could be readily obtained and used for verification of accuracy.
FINRA also found that the firm failed to disclose all material aspects of its relationship with significant execution venues, including a description of any payment for order flow arrangement between the firm and any such execution venue. The firm failed to disclose specific rebates or rebate information that it received for executing orders on the exchanges. The firm’s WSPs were not reasonably designed because they failed to specify what the review of its systems for all client activity entails or detail how this review should be conducted. Further, the firm’s supervisory system provided no other review to assure that the material aspects of its payment for order flow arrangements were disclosed.
The full FINRA Letter of Acceptance, Waiver, and Consent can be found here.
