Monthly Disciplinary Actions - September 2008

• This matter involves violations by the Firm pertaining to books and records and supervisory deficiencies in 2005, 2006, and 2007. The violative activity included, among other matters, that the Firm failed to properly retain e-mails and instant messages, improperly computed its required Net Capital, failed to conduct an independent review of its Anti-Money Laundering Compliance Program, and had inadequate written procedures for supervision and control, including a separate system of follow-up and review, in these areas.

NYSE Arca imposed a penalty of a censure and $40,000 fine. Student Options, LLC consented to the penalty.

• An NYSE hearing panel found that Murin violated NYSE Rule 476(a)(6) in that he permitted execution of variable annuities switches that were unsuitable for customers and violated NYSE Rule 342 in that he failed to reasonably supervise execution of variable annuities switches by his firm. 

• An NYSE hearing officer found that during the period January 12, 2005, through April 4, 2005, Attarwala entered at least 62 fictitious trades in a trading account of his member firm employer in a manner which he knew did not correspond to actual transactions. These transactions caused false profits of $926,980 to be reflected in his own trading account, and false losses of $926,980 to be reflected in other intracompany trading accounts of his member firm employer. Attarwala also made material misstatements to the NYSE about his misconduct.

The NYSE imposed a penalty of a censure and two-year bar. Attarwala consented to the penalty.

• An NYSE hearing officer found that on March 3, 2005, LaRusso entered three fictitious sales of ABC in the Firm’s trading systems, each in the amount of 25,000 shares. LaRusso falsely identified the contra-broker on the trades as “MARS,” although no such contra-broker existed. LaRusso misrepresented these trades to the Firm as “errors.” The three fictitious sales of ABC to MARS created the false appearance that LaRusso’s position had been reduced by 75,000 shares. Further, these sell entries created the appearance of realized profits that did not exist.  These transactions also served to conceal the unrealized loss associated with these shares.
• Also on March 3, 2005, in the Firm’s facilitation account, LaRusso entered two orders purchasing 100,000 shares each of ABC from the Firm’s proprietary account and two orders immediately reselling the same 100,000 shares back to the Firm’s proprietary account. These four trades were a wash, and thus did not result in a change in LaRusso’s ABC position. These trades, however, generated an artificial profit of $74,000, which offset and concealed the true size of trading losses in ABC that day. 
• The total loss to the Firm resulting from the position that LaRusso had accumulated in ABC was $125,000. 

The NYSE imposed a penalty of a censure and nine-month bar. LaRusso consented to the penalty.

• An NYSE hearing officer found that during the period from January 2004 through November 2006, the Firm on 11 occasions entered proprietary trades ahead of or along with customer orders in violation of NYSE Rule 92(a). In all but one of these cases, the Firm either did not obtain customer permission from institutional customers, or did not properly follow the provisions of customer permission as documented, to fit within a trading exception under NYSE Rule 92(b). During that same period, the Firm on 14 occasions failed to document whether it had received permission from customers for it to trade ahead of or along with the customers’ orders in violation of NYSE Rule 401. In addition, the Firm failed, in violation of NYSE Rule 342, to reasonably supervise and implement adequate controls reasonably designed to achieve compliance with NYSE rules and policies regarding the documentation of customers’ permission to trade along with or ahead of their orders.
• Moreover, from February 1, 2007, through October 31, 2007, the Firm failed to properly record, maintain, and preserve certain data elements with respect to orders in various NYSE securities and failed to transmit such data elements, at NYSE Regulation’s request, in the OTS format in violation of NYSE Rules 132B and 132C. In addition, the Firm failed, in violation of NYSE Rule 342, to reasonably supervise and implement adequate controls reasonably designed to achieve compliance with NYSE rules and policies regarding the recording, maintenance, and transmission of order tracking information in NYSE-listed securities in the proper electronic Order Tracking System format.

• Between January 2005 through approximately October 2006 (the "Relevant Period"), Deutsche Bank Securities, Inc. ("DBSI") with respect to at least five of its 19 proprietary trading desks (the "Five Desks"), failed to comply with certain NYSE Arca Equities Rules and Regulation SHO ("Reg SHO") requirements with respect to its execution and supervision of short sale orders described in the decision.
• Specifically, the Firm effected an unquantified but significant number of short sales on at least the Five Desks in securities that were not on the Firm's Easy-To-Borrow List without having borrowed the securities or entered into bona fide arrangements to borrow the securities, or having reasonable grounds to believe that the securities could be borrowed for delivery when due, and without the proper documentation of such.
• Further, at least two of such Desks did not properly adhere to the independent trading unit aggregation requirements and one trader on each of the two Desks did not correctly mark an unquantified but significant number of proprietary sell orders. As a result, certain short sales were incorrectly marked long, and some of those orders were improperly executed.
• The Firm also failed to adequately supervise certain traders on at least the Five Desks and failed to maintain and enforce written supervisory procedures concerning proprietary short sales in a manner reasonably designed to achieve compliance with the relevant provisions of Reg SHO and NYSE Arca Equities Rules.

NYSE ARCA Equities imposed a penalty of a censure and $575,000 fine. Deutsche Bank Securities Inc. consented to the penalty.