Broker-Dealer Settles Nasdaq Charges for Failing to Monitor Customer Limit Order Displays

A broker-dealer settled Nasdaq charges for failing to monitor whether it timely displayed customer limit orders.

In March 2020, the firm became aware that its automated exception reports used to detect potential violations of limit order display rules had ceased functioning, according to the AWC. Nasdaq found that the firm tasked an employee with conducting manual reviews but the volume of orders made the manual review unreliable. The AWC said that when the employee departed in June 2021, the firm stopped conducting manual reviews entirely until it implemented a new automated report in August 2022.

Nasdaq also found that the firm's written supervisory procedures did not describe what personnel should consider to determine if a violation occurred and, from March 2020 through May 2021, did not describe the volume, frequency, or sampling methodology of the manual review. Because of the deficient supervisory system, the firm in isolated instances failed to review customer limit orders that it potentially failed to timely display, Nasdaq said.

The firm consented to findings that it violated Nasdaq Rule General 9, Section 20(a) ("Supervision") and Section 1(a) ("Standards of Commercial Honor and Principles of Trade"), for failing to maintain a supervisory system reasonably designed to achieve compliance with 17 CFR 242.604 ("Display of customer limit orders").

The firm agreed to a censure and a $20,000 fine, which was resolved simultaneously with similar matters brought on behalf of FINRA, Cboe BZX Exchange, Nasdaq Texas, and the New York Stock Exchange for a total fine of $100,000.