Monthly Disciplinary Actions - October 2009

NYSE ARCA OPTIONS DISCIPLINARY ACTION
Options Firm Disciplined for Supervisory Deficiencies, Other Violations
AK Capital, LLC
Hearing Board Decision: 09-ARCA-09
07 Oct 2009
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Case Note
Violated Section 17(a)(1) of Exchange Act, Rule 17a-4(b)(4) thereunder, and NYSE Arca Options Rule 11.16(a) by failing to properly retain and preserve business-related instant messages sent or received by employees; violated NYSE Arca Options Rule 11.3, Commentary .03 (C) and (D) by: (i) failing to establish, maintain, or enforce adequate written policies and procedures reasonably designed to prevent misuse of material, non-public information by employees; and (ii) failing to obtain and review trade confirmations and monthly account statements for certain accounts in which one of its employees had direct or indirect financial interest, or had made investment decisions; violated Section 17(a)(1) of Exchange Act, Rule 17a-3(a)(2) thereunder, and NYSE Arca Options Rule 11.16(a) by failing to accurately make and keep current books and records reflecting all assets, liabilities, income expenses and capital accounts; violated Section 17(a)(1) of Exchange Act and Rule 17a-3(12) thereunder by failing to appropriately conduct and document background checks of employees prior to employment; violated NYSE Arca Options Rule 11.18 by failing to establish, maintain, and/or enforce appropriate written policies and procedures for supervision and control, including separate system of follow-up and review, in following areas: (a) background checks of employees prior to employment, (b) retention, preservation, and review of business-related instant messages sent or received by employees, and (c) prevention of misuse of material, non-public information by employees – Consent to censure and $20,000 fine.

 

Case Summary
AK Capital, LLC of New York City, an NYSE Arca Options Trading Permit Holder, consented to without admitting or denying guilt to findings of supervisory deficiencies, among other violations:

An NYSE Arca hearing officer found that AK Capital's violative activity included failure to: properly retain and preserve all business-related instant messages sent or received by its employees; establish, maintain, or enforce adequate written policies and procedures reasonably designed to prevent the misuse of material, non-public information by its employees; obtain and review trade confirmations and monthly account statements for certain accounts in which one of its employees had a direct or indirect financial interest, or had made the investment decisions; accurately make and keep current its books and records reflecting all assets, liabilities, income expenses and capital accounts; appropriately conduct and document background checks of its employees prior to employment; and establish, maintain, and/or enforce appropriate written policies and procedures for supervision and control, including a separate system of follow-up and review, in connection with conducting background checks of its employees prior to employment, business-related instant messages sent or received by its employees, and the prevention of the misuse of material, non-public information by its employees.

NYSE Arca imposed a penalty of a censure and a $20,000 fine. AK Capital, LLC consented to the penalty. 

* -- Pursuant to NYSE Arca Options Rule 1.1(d),  the term "Associated Person" refers to a person who is a partner, officer, director, member of a limited liability company, trustee of a business trust, employee of an OTP firm or any person directly or indirectly controlling, controlled by or under common control with an OTP firm.

 
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Member Firm Disciplined for Supervisory Deficiencies Regarding Closing Orders
National Financial Services, LLC
Hearing Board Decision: 09-NYSE-21
07 Oct 2009
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Case Note
Violated NYSE Rule 123C by failing to comply with requirements governing entry and cancellation of Market On Close and Limit On Close orders; violated NYSE Rule 342 by failing to reasonably supervise and implement adequate controls, including a reasonable system of follow up and review, designed to achieve compliance with NYSE Rule 123C – Consent to censure and $75,000 fine.
Case Summary
National Financial Services, LLC, an NYSE member organization with its principal place of business in Boston, Mass., consented without admitting or denying guilt to trading violations regarding Market On Close (MOC) and Limit On Close (LOC) orders as well as supervisory deficiencies.
  • An NYSE hearing officer found that on eight trade dates between August 2006 and Nov. 6, 2008, National Financial Services, LLC, improperly entered or cancelled 209 MOC orders, in violation of NYSE Rule 123C. In addition, during that period, the firm failed to reasonably supervise the cancellation of MOC orders, in violation of NYSE Rule 123C. These violations resulted from miscommunications among the firm’s trading staff, errors by the firm’s trading staff, and improper cancellations submitted by institutional clients of the firm.

The NYSE imposed a penalty of a censure and a $75,000 fine.  National Financial Services, LLC consented to the penalty.
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Member Firm Disciplined for Violations Regarding Odd-Lot Orders
Tradestation Securities, Inc.
Hearing Board Decision: 09-NYSE-20
07 Oct 2009
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Case Note
Violated NYSE Rule 476(a)(6) by engaging in conduct inconsistent with just and equitable principles of trade in that it introduced, for execution on the New York Stock Exchange (NYSE), odd-lot orders that were inconsistent with the NYSE’s odd-lot rules and policies; violated NYSE Rule 401 by failing to adhere to principles of good business practice in that it introduced, for execution on the NYSE, odd-lot orders that were inconsistent with NYSE’s odd-lot rules and policies; violated NYSE Rule 405(1) by failing to learn essential facts relative to certain of its customers and orders it introduced for execution; 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 NYSE rules and policies pertaining to odd-lot orders   – Consent to censure and $100,000 fine.
Case Summary
Tradestation Securities, Inc. of Plantation, Fla., a member firm, consented without admitting or denying guilt to violations regarding odd-lot transactions.
  • An NYSE hearing officer found that from on or about Jan. 1, 2007 to on or about Dec. 31, 2007, Tradestation Securities, Inc. engaged in conduct inconsistent with just and equitable principles of trade and failed to adhere to the principles of good business practice by introducing to the NYSE, on behalf of its non-member customer, approximately 14,824 odd-lot orders, the majority of which were limit orders, in a pattern of day trading, contravening NYSE policies and rules related to odd-lot trading.  The activity evidenced the firm’s failure to learn essential facts relative to its customer and the orders it introduced for execution on the NYSE.
  • In addition, the firm failed to reasonably supervise and implement adequate controls, including a separate system of follow-up and review, reasonably designed to achieve compliance with NYSE rules pertaining to odd-lot trading activity being routed to the NYSE through the Firm’s electronic order entry systems. 

The NYSE imposed a penalty of a censure and $100,000 fine.  Tradestation Securities, Inc. consented to the penalty.
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Member Firm Disciplined for Supervisory Deficiencies Regarding Closing Orders
Citigroup Global Markets, Inc.
Hearing Board Decision: 09-NYSE-19
07 Oct 2009
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Case Note
Violated NYSE Rule 123C by failing to comply with requirements governing entry and cancellation of Market On Close and Limit On Close orders; violated NYSE Rule 342 by failing to reasonably supervise and implement adequate controls, including reasonable system of follow up and review, designed to achieve compliance with NYSE Rule 123C -Consent to censure and $150,000 fine.

 

Case Summary
Citigroup Global Markets, Inc.,  an NYSE member organization with offices in New York City and globally, consented without admitting or denying guilt to trading violations regarding Market On Close (MOC) and Limit On Close (LOC) orders as well as related supervisory deficiencies.
  • An NYSE hearing officer found that on four trade dates during the period Feb. 5, 2007 through June 21, 2007, Citigroup Global Markets, Inc. violated NYSE Rule 123C by canceling a total of 365 MOC orders in various securities after the relevant cutoff times.
  • Additionally, on 18 trade dates during the period Dec. 9, 2008 through Jan. 5, 2009, the firm violated NYSE Rule 123C by submitting 12,480 LOC orders after the 3:40 p.m. cutoff time, when such orders did not offset any published regulatory imbalances and there were no regulatory halts in effect.  The firm violated NYSE Rule 123C again on Feb. 3, 2009 by submitting an LOC order after 3:40 p.m. when such order did not offset any published regulatory imbalance. 
  • Furthermore, the firm violated NYSE Rule 342 by failing to reasonably supervise and implement adequate controls, including a separate system of follow up and review, reasonably designed to achieve compliance with NYSE Rule 123C.

The NYSE imposed a penalty of a censure and $150,000 fine.  Citigroup Global Markets, Inc. consented to the penalty.
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