Barclays Capital Inc.
The findings stated that as a result, the firm sent millions of options orders to the options exchanges without being surveilled for spoofing or layering. Specifically, none of the firm’s surveillances for layering and spoofing included options order activity, and its WSPs did not reference surveilling options for layering and spoofing.
In addition, the firm did not maintain regulatory risk management controls and immediate post-trade execution reports so as to allow it to surveil for potential spoofing and layering for options orders that the firm routed directly to the options exchanges.
Further, the firm’s parameters for surveillances required that the aggregated volume of potentially manipulative orders by account be at least 20 times greater than the average trade size of the security. This parameter was unreasonable because layering and spoofing can occur with smaller-sized orders. The firm subsequently made changes to lower this threshold.
The findings also stated that the firm failed to establish and maintain a supervisory system reasonably designed to supervise for potential layering and spoofing of equities orders sent to certain exchanges.
The firm began relying on a third-party surveillance system to monitor its equities orders for potential layering and spoofing activity. During the system’s implementation, the firm mistakenly designated two national securities exchanges as “dark” venues instead of “lit” venues, which caused the firm’s equities order flow sent to these exchanges to be excluded from the surveillance for potential layering and spoofing. Subsequently, the firm correctly designated the two national exchanges as lit venues in the third-party surveillance system and began surveilling orders sent to the exchanges for potential layering and spoofing.