Securities Industry Commentator by Bill Singer Esq

May 11, 2021
When we were kids, we were warned that we would drown if we went back into the water so much as a minute before the magical "one hour." Then there was that story about how swallowed gum stayed in your stomach for seven years. Not six years. Not eight years. But seven. And, of course, someone knew someone who knew a kid who had a brother who swallowed gum on a dare and it didn't come out for . . . you got it . . . seven years. In a recent federal case, we got seven years between a FINRA regulatory settlement and a federal court's opinion that what was agreed to all those years ago is going to stay on the books. Which proved a hard wad of gum for the respondents to swallow.
Few industry reporters have a better grasp of their content and audience than RIABiz's Oisin Breen. In his recent story about money market NAVs, he pens yet another comprehensive coverage. Great job!
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, SpeedRoute LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that SpeedRoute LLC has been registered with FINRA since 2000, and the firm has about 17 registered representatives. The AWC alleges that SpeedRoute LLC "does not have any relevant disciplinary history." As set forth in the "Overview" to the AWC:

From October 1, 2014 through August 17, 2017, SpeedRoute failed to establish and maintain a supervisory system, including supervisory procedures, reasonably designed to achieve compliance with rules prohibiting manipulative activity, including layering, spoofing, and prearranged and wash trades.1

From September 6, 2017 through March 6, 2018, SpeedRoute failed to comply with various provisions of Securities Exchange Act Rule 15c3-5 relating to establishing, monitoring, and amending customer credit limits and conducting annual reviews and certifications of the effectiveness of its market access risk management controls and supervisory procedures. 

Based on the foregoing, SpeedRoute violated NASD Rule 3010 (for conduct prior to December 1, 2014), FINRA Rule 3110 (for conduct on or after December 1, 2014), Section 15(c)(3) of the Securities Exchange Act of 1934, Exchange Act Rule 15c3- 5(c)(1)(i) and 15c3-5(e), and FINRA Rule 2010. 

In addition, from September 2014 through November 2020, SpeedRoute submitted more than 1.1 billion reports to the Order Audit Trail System (OATS) with incorrect codes in certain fields. Approximately 850 million such reports occurred between September 2014 m September 2015. SpeedRoute also failed to establish, maintain, and enforce written procedures that were reasonably designed to achieve compliance with its OATS reporting obligations. 

Based on the foregoing, SpeedRoute violated FINRA Rule 7450, FINRA Rule 3110 (for conduct on and after December 1, 2014) and NASD Rule 3010 (for conduct prior to December 1, 2014), and FINRA Rule 2010. 
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Footnote 1:  A related disciplinary action on behalf of the Investors Exchange, Inc. (IEX) is being handled in conjunction with this matter. 

In accordance with the terms of the AWC, FINRA imposed upon SpeedRoute:

A censure and a total fine of $310,000 ($187,500 to be paid jointly to FINRA and IEX for failing to supervise to identify potentially manipulative activity and for the violations of Rule 15c3-5, of which $143,500 is allocated to FINRA; $90,000 for the violations of FINRA Rule 7450, all allocated to FINRA; and $32,500 for failing to supervise for compliance with Rule 7450, all allocated to FINRA).  

Bill Singer's Comment: Compliments to FINRA on an excellent AWC that tackles a number of compliance/regulatory issues in a clear-cut and compelling manner. After reading the various allegations, industry compliance professionals should come away with a better understanding of what policies need to be in place and how best to enforce same.
As readers of the Blog know, I am a critic of inarticulate legal writing -- be that a pleading, motion papers, awards, opinions, orders, or any number of press releases. In a recent ruling on a motion before the District of Connecticut, Senior District Judge Charles S. Haight, Jr. shows how it should be done -- he pens an enchanting, entertaining, comprehensive, and superbly edited opinion.