Monthly Disciplinary Actions - May 2010

Member Firm Disciplined for Trading Violations
UBS Securities LLC
Hearing Board Decision: 10-NYSE-07
12 May 2010
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Case Note
Violated NYSE Rule 92(a) by entering order to buy (sell) NYSE-listed security while knowingly in possession of customer order to buy (sell) such security, which could have been executed at same price; violated NYSE Rule 401 by failing to conduct business affairs in accordance with principles of good business practice by failing to adequately document customer’s permission to trade along with, or ahead of, customer orders executed pursuant to NYSE Rule 92(b); violated Section 11(a)(1) of Exchange Act and NYSE Rule 90 in that orders were executed by Firm’s Floor Brokers on NYSE Floor for account in which Firm had interest without such orders complying with requirements of statutory exemption; violated NYSE Rule 410(b) by allowing proprietary orders that could have been properly executed pursuant to Section 11(a)(1)(G) of Exchange Act to be transmitted to NYSE Floor without being identified in manner that would enable order to be handled pursuant to requirements of Exchange Act Section 11(a)(1)(G); violated NYSE Rule 132.30 by submitting inaccurate account type indicators to NYSE for comparison and settlement; violated NYSE Rules 410(a) and 440 and Exchange Act Rules 17a-3(a)(1) and (3) and 17a-4(b)(1) by failing to make and maintain certain records of order information and order tickets; violated NYSE Rule 123C by failing to comply with requirements governing entry and cancellation of MOC and LOC orders; violated NYSE Rule 410B by failing to report to NYSE certain transactions in NYSE-listed securities that were not reported to Consolidated Tape; violated NYSE Rule 342 by failing to provide for appropriate procedures of supervision and control, including separate system of follow-up and review, reasonably designed to achieve compliance with NYSE rules with respect to (a) transmission and execution of certain proprietary and agency trades on NYSE Floor; (b) submission of certain audit trail data; (c) retention of certain records pertaining to order information and order tickets; (d)  entry and/or cancellation of certain MOC and LOC orders; and (e) submission of certain NYSE Rule 410B Reports – Consent to censure and $350,000 fine.

 

Case Summary
UBS Securities LLC of Stamford, Conn., a member firm, consented without admitting or denying guilt to trading violations.
 
An NYSE hearing officer found that during the period January 2005 through December 31, 2008 (the “First Relevant Period”) UBS violated NYSE Rule 92(a) on 21 occasions by: (i) on eight occasions, trading along with or trading ahead of a customer order without consent to do so; (ii) on seven occasions, obtaining consent from a customer to trade along with the customer’s order, but allocating certain executions between the Firm’s proprietary account and the customer’s account in amounts outside of the consent granted without obtaining the customer’s consent to modify the terms of the original consent; and (iii) on six occasions, in instances where the Firm traded along with or ahead of a customer order without consent to do so, such trading was also in violation of Securities Exchange Act of 1934 ("Exchange Act") Section 11(a)(1), because the Firm’s “G” order failed to yield priority, parity and precedence to public orders.

During the First Relevant Period, the Firm failed on 11 occasions to document whether it had obtained a customer’s consent to trade along with or trade ahead of the customer’s order in violation of NYSE Rule 401.  Further, on several occasions the Firm submitted inaccurate account type indicators in violation of NYSE Rule 132.30, and failed to mark certain proprietary orders with the required “G” notation in violation of NYSE Rule 410(b).

During the First Relevant Period, the Firm failed to make and maintain certain books and records in violation of NYSE Rules 410(a) and 440 and Exchange Act Rules 17a-3(a)(1) and (6) and 17a-4(b)(1).

Enforcement’s investigation also disclosed that during the period January 19, 2007 through December 24, 2008, (the “Second Relevant Period”) the Firm entered or cancelled 1,231 Market-on-Close or Limit-on-Close (“MOC/LOC”) orders in violation of NYSE Rule 123C.    Separately, on three occasions between September 1, 2008 and January 19, 2009, UBS failed to report trades in NYSE-listed securities not otherwise reported to the Consolidated Tape in violation of NYSE Rule 410B.

Throughout both relevant periods, UBS failed to provide for appropriate procedures of supervision and control, including a separate system of follow-up and review, reasonably designed to achieve compliance with respect to: (a) the transmission and execution of certain proprietary and agency orders on the NYSE Floor; (b) the submission of certain audit trail data; (c) the retention of certain records pertaining to order information and order tickets; (d) the entry and cancellation of certain MOC/LOC orders; and (e) the reporting requirements with respect to certain trades in NYSE-listed securities not otherwise reported to the Consolidated Tape, in violation of NYSE Rule 342.

The NYSE imposed a penalty of a censure and $350,000 fine.  UBS Securities LLC consented to the penalty.

 

 

 
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NYSE ARCA EQUITIES DISCIPLINARY ACTION
Equities Trading Permit Holder Disciplined for Supervision Violations
Cantor Fitzgerald & Co.
Hearing Board Decision: 10-ARCA-01
12 May 2010
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Case Note
Violated NYSE Arca Equities Rule 6.18(a) by failing to reasonably supervise its then-Debt Capital Markets Division (“DCM”) Chief Executive Officer’s (“CEO”) personal and proprietary equities trading to assure compliance with federal securities laws and NYSE Arca Equities Rules; violated NYSE Arca Equities Rule 6.3.03(C) by failing to retain and review copies of monthly account statements and trade confirmations for personal trading accounts of its then-DCM CEO, in which he had financial interest and made investment decisions – Consent to censure and $250,000 fine. 

 

 

 

 

Case Summary
Cantor Fitzgerald & Co. of New York City, an NYSE Arca Equities Trading Permit Holder, consented without admitting or denying guilt to NYSE Arca Equities rule violations regarding supervision. 

An NYSE Arca hearing officer found that during the period January through December 2006, Cantor Fitzgerald & Co. violated NYSE Arca Equities Rule 6.18(a) in that it failed to reasonably supervise the personal and proprietary equities trading accounts of the CEO at the time of one of the Firm’s business units, DCM. During that period, the former DCM CEO day-traded the same securities in both his personal and proprietary equities trading accounts and on certain days placed dozens of buy and sell orders in the same security within minutes of each other. The Firm did not subject his proprietary equities trading to most of the surveillances typically applied to equities trading in the Firm’s proprietary accounts, such as front-running, wash-trading, marking-the-close, or review his personal trading accounts for such violative trading activity. Moreover, by allowing the former DCM CEO to trade the same securities in his personal and proprietary accounts, in violation of Firm procedures, the Firm allowed the former DCM CEO’s investment decisions to be potentially affected by an inappropriate conflict of interest (i.e., effecting trades for his own benefit). The Firm thereby failed to monitor for potential violations of certain NYSE Arca Equities rules and federal securities laws and for a potential inappropriate conflict of interest.   

The Firm also violated NYSE Arca Equities Rule 6.3.03(C) by failing, for over three years, from August 2003 to November 2006, to retain and review copies of trade confirmations and monthly account statements for the personal trading accounts of the former DCM CEO.

NYSE Arca imposed a penalty of a censure and $250,000 fine.   Cantor Fitzgerald & Co. consented to the penalty.
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NYSE AMEX DISCIPLINARY ACTION
Individual Disciplined for Trading Violations
David Shin
Hearing Board Decision: 10-AMEX-06
12 May 2010
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Case Note
Violated Article V, Section 4(c) of Amex Constitution by entering fictitious transactions that were printed to Consolidated Tape which never occurred in open market, had no legitimate buyer or seller, and were not submitted for clearance – Consent to censure and four-month bar.
Case Summary
David Shin of Brooklyn, N.Y, a former specialist, consented without admitting or denying guilt to trading violations regarding Exchange Traded Funds.
 
An NYSE Amex hearing officer found that Shin entered into the Amex’s New Equity Trading System (“NETS”)[1] electronic equity trading platform approximately 25 trades in various Exchange Traded Funds (“ETFs”) for which he was the specialist, which were printed to the Consolidated Tape (“Tape”)[2] even though the trades did not exist and never occurred in the open market.

[1]    NETS, which was used at the Amex from March 2003 through November 2006, was an enhanced specialist display book that had accelerated the trading process and provided greater functionality and automation for updating and matching orders, quoting and reporting trades, regulating, and researching other details.

[2]    The Consolidated Tape is an electronic system that constantly reports the latest price and volume data on sales of exchange-listed securities.

 

 
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NYSE AMEX DISCIPLINARY ACTION
Individual Disciplined for Market Making Violations, Among Other Things
Mark Stephen Kolber
Hearing Board Decision: 10-AMEX-07
12 May 2010
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Case Note

Violated Regulation X by willfully causing clearing firm to inappropriately extend good faith margin treatment to options transactions in contravention of Regulation T; violated Amex Rule 16 by failing to adhere to principles of good business practice in conduct of business affairs by (a) placing non-market making transactions in market making accounts that were only to be used for market-making transactions at Amex, thus improperly causing his clearing firm to extend preferential margin treatment and (b) failing to address deficiencies cited in Cautionary Letter issued by NASD including failure to have adequate written policies and procedures for certain areas of business; violated Amex Rule 320, Commentary .08 failing to maintain written compliance manual adequately specifying obligations under applicable securities laws and regulations and Exchange Rules and processes and controls in place that were reasonably designed to achieve compliance with such obligations – Consent to censure and two-month bar.
Case Summary
Mark Stephen Kolber of New York City, a former sole proprietor and Registered Options Trader, consented without admitting or denying guilt to trading violations regarding market making, among other things.

An NYSE Amex hearing officer found that, because during each of four consecutive quarters from July 2006 through June 2007 Kolber effected more than 98% of his volume (constituting more than 99% of his total trades) on markets other than the Amex, he did not satisfy the requirements of a market maker under Section 3(a)(38) of the Securities Exchange Act of 1934 .   Despite not being a market maker, Kolber improperly placed these trades in his market making account.   As a result, he violated Part 224 of Regulation X, promulgated by the Board of Governors of the Federal Reserve System under the Securities Exchange Act, in that he willfully caused his clearing firm to improperly extend him good faith market making margin, which is the most preferential margin treatment that can be provided to a broker dealer by its clearing firm and provides additional buying power. .  Kolber also violated Amex Rule 16, in that he failed to adhere to the principles of good business practice in the conduct of his business affairs by placing non-market making transactions in a market making account that was only to be used for market-making transactions, thereby improperly causing his clearing firm to extend him preferential margin treatment. 

Kolber further violated Amex Rule 16, by failing to address the deficiencies cited in a Cautionary Letter that had been sent to him by the National Association of Securities Dealers, including the failure to have adequate written policies and procedures for certain areas of his business. Kolber also violated Amex Rule 320, Commentary .08 by failing to maintain a compliance manual which adequately specified the obligations to which he was subject under applicable securities laws and regulations and Amex Rules. 

The NYSE Amex imposed a penalty of a censure and two-month bar.   Mark Stephen Kolber consented to the penalty.
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Goldman Sachs Execution & Clearing, L.P. Disciplined by NYSE and SEC
Goldman Sachs Execution & Clearing, L.P.
Hearing Board Decision: 10-NYSE-11
04 May 2010
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Case Note
Violated Rule 204T(a) of Regulation SHO by failing to timely close out fail-to-deliver positions in certain equity securities; violated Rule 204T(b) of Regulation SHO by accepting certain customer short sale orders in equity securities for which it had an open fail-to-deliver position while it and customer were in "penalty box," as customer had not first borrowed such securities or entered into bona fide arrangement to borrow the securities; violated Rule 204T(c) of Regulation SHO by failing to timely notify its customers that it had an open fail-to-deliver position that had not been closed out in accordance with Rule 204T(a); violated NYSE Rule 342 by failing to reasonably supervise and implement adequate controls, including separate system of follow-up and review, reasonably designed to achieve compliance with Rule 204T of Regulation SHO – Consent to censure and a $450,000 fine.  The amount to be paid to NYSE Regulation by Firm shall be reduced by the amount paid by Firm pursuant to agreement to pay civil monetary penalty of $225,000 in related proceedings instituted by the SEC. 
Case Summary
Goldman Sachs Execution & Clearing, L.P. of Jersey City, N.J., a member firm, consented without admitting or denying guilt to violations of SEC Rule 204T of Regulation SHO.

An NYSE hearing officer found that from on or about Dec. 9, 2008 to on or about Jan. 22, 2009, Goldman Sachs Execution & Clearing, L.P. ("GSEC") violated SEC Rule 204T of Regulation SHO on certain occasions by:

  • failing on approximately 68 occasions to timely close out fail-to-deliver positions in equity securities;
  • accepting on approximately 385 occasions customer short sale orders in certain equity securities for which it had an open fail-to-deliver position that had not been timely closed out in accordance with SEC Rule 204T of Regulation SHO without first borrowing the securities or entering into a bona fide arrangement to borrow the securities (also referred to as the “pre-borrow” requirement); and
  • failing on approximately 68 occasions to timely notify certain customers that there was an open fail-to-deliver position in certain equity securities that had not been timely closed out in accordance with SEC Rule 204T(a) of Regulation SHO. 

In addition, during the period of Sept. 24, 2008 to Jan. 22, 2009, GSEC failed to reasonably supervise and implement adequate controls to achieve compliance with SEC Rule 204T of Regulation SHO, in violation of NYSE Rule 342.

The NYSE imposed a penalty of a censure and a $450,000 fine.  The amount to be paid to NYSE Regulation by the Firm shall be reduced by the amount paid by the Firm pursuant to an agreement  to pay a civil monetary penalty of $225,000 to the United States Treasury in related proceedings instituted by the Securities and Exchange Commission today.  GSEC consented to the penalty. 

This decision will become final on May 28, 2010. 
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