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FINRA Nabs Market Maker for Trading Ahead of Customers Orders
by Howard Haykin
The Benchmark Company agreed to pay $27K in fines and restitution to settle FINRA charges that it accepted and held customer orders, traded for its own account at prices that would have satisfied the customer orders, and failed to execute or immediately execute the customer orders in OTC equity securities up to the size and at the same price at which it traded for its own account or at a better price – i.e., IT TRADED AHEAD OF CUSTOMERS’ ORDERS.
BACKGROUND. The Benchmark Company, based in New York, NY, has been a member of FINRA since 1989. The firm had no relevant disciplinary history.
FINRA FINDINGS. FINRA's Department of Market Regulation reviewed the firm's compliance with FINRA Rule 5320 pertaining to customer order protection concerning OTC Equity Securities for Q3 of 2012 and Q2 of 2013. For this ‘Review Period’, FINRA cited violations pertaining to 101 instances of violative actions.
- Trading Ahead: While holding 58 customer orders, the firm traded for its own account at prices that would have satisfied those orders and failed to execute or immediately execute the customer orders in up to the size and at the same price at which it traded for its own account or at a better price.
- In 39 instances, the firm failed to make every effort to cross a marketable customer order with another order received by the firm on the opposite side of the market.
- On 27 occasions cited above as involving a trading ahead violation, the firm failed to execute a marketable customer order fully and promptly.
FINRA further noted:
- For 30 brokerage orders, the firm failed to show the correct time of execution on the order ticket memorandum of 30 brokerage orders during the review period.
- For the review period, the firm failed to evidence supervisory reviews for trading ahead violations.
This case was reported in FINRA Disciplinary Actions for May 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2013036707701.