Broker-Dealer Settles Cboe BZX Charges Over Market Access Control Gaps
A broker-dealer settled Cboe BZX charges that its market access controls failed to prevent an erroneous order that caused a security's price to spike by more than 11 million percent.
Cboe BZX alleged that on March 7, 2025, the firm received a 100,000-warrant buy-side market order when the National Best Bid and Offer was $0.028 to $0.041 per warrant. After the order was paused by the firm's average daily volume control and released by personnel without using a manual completion price tool, the firm's order management system split it into child orders with successively higher limit prices tied to the rising quote, according to the Letter of Consent. Executions above $4,500 per warrant occurred across the consolidated market, representing a price increase of up to roughly 11,179,412 percent. Child orders routed to Cboe BZX executed at prices as high as $4,583.56.
The firm petitioned the Exchange Trade Desk to declare all trades in the security at or above $0.10 per warrant between 15:48:00 and 15:48:15 clearly erroneous. The petition went to a street-wide ruling, which busted all trades at or above $0.04 per warrant between 15:47:00 and 15:51:00.
Cboe BZX alleged that the firm's controls were not reasonably designed because, for market orders paused by a soft block and then released by personnel, no additional pre-trade controls applied to securities not subject to Limit Up-Limit Down bands, such as a control assessing market impact or rejecting orders priced far away from the quote.
The firm consented to sanctions for alleged violations of Cboe BZX Rule 3.2 ("Violations Prohibited") and Exchange Act Rules 15c3-5(b) and 15c3-5(c)(1)(ii) ("Risk Management Controls for Brokers or Dealers with Market Access").
The firm agreed to a censure and a $15,000 fine, plus a separate $15,000 settlement with Cboe EDGX over the same conduct. Cboe BZX noted that in November 2021, the firm had consented to $120,000 in fines jointly imposed by Cboe BZX, Cboe BYX, and Cboe EDGX over similar risk-management control failures.