Instinet, LLC has submitted a Letter of Acceptance, Waiver and Consent to settle alleged rule violations and it has been censured and fined over $1.5 million for those violations in an action undertaken by FINRA, along with BOX Options Exchange LLC; the Cboe BZX Exchange, Inc.; Investors Exchange LLC; The NASDAQ Stock Market LLC; the New York Stock Exchange; and certain of their affiliated Exchanges (collectively, "Exchanges").
Instinet. After an investigation conducted by FINRA’s Department of Market Regulation ("Market Regulation") on behalf of the Exchanges, it was determined that, during the relevant period, Instinet "failed to establish, document, and maintain a system of risk management controls and supervisory procedures, including written supervisory procedures and an adequate system of follow-up and review, reasonably designed to manage the financial, regulatory, and other risks of its market access business."
The matters connected to the failures include:
- In Matter Nos. 20130368360 and 20130384257, the New York Equities Section of Market Regulation reviewed pre-opening spoofing by the Firm from August 2012 through December 2012, and the Firm's compliance with Rule 15c3-5 of the Securities Exchange Act of 1934 (the "Market Access Rule");
- In Matter 20130376217, the Trading Analysis Section ("Trading Analysis") of Market Regulation reviewed potential layering and wash trades by the Firm's Market Access Clients from July 17, 2013 through May 29, 2015, and the Firm's compliance with the Market Access Rule;
- In Matter No. 20150463452, the Market Manipulation Investigations Group of Market Regulation reviewed the Firm's layering surveillances and exception reports in effect from April 2015 through April 2016, and the Firm's compliance with the Market Access Rule; and
- In Matter No. 20150482156, Trading Analysis reviewed the Firm's procedures, systems, and controls related to potential layering, pre-opening spoofing, intraday spoofing, and wash trades in place from January 1, 2015 through May 31, 2017, and the Firm's compliance with the Market Access Rule.
"This case demonstrates the importance of reasonable market access procedures to appropriately monitor for errors and risks that can be harmful to the integrity of our securities markets," said FINRA and the Exchanges in a joint statement.
Penalties. In addition to the fine, Instinet must address the Market Access Rule deficiencies described in the letter and ensure that it has implemented controls and procedures reasonably designed to achieve compliance with the rules and regulations.
The letter of acceptance, waiver and consent is No. 2013036836015.
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