BofA Securities, Inc.
The findings stated that the firm had systemic latency issues that prevented it from executing simultaneously off-exchange trade-throughs that it reported to FINRA with an Outbound ISO Exception modifier. Instead, they were executed, in limited circumstances, one second or more after ISOs were routed. The intermittent delays were the unintended consequence of the firm’s programming choices for two components of its electronic order management systems that the firm had implemented. Because these delays were unintentional and not for the purpose of allowing customers to obtain the benefit of better ISO pricing, the Outbound ISO Exception did not apply to these trade-throughs.
In addition, one of the firm’s electronic order management systems ingested and processed market data from the national exchanges for the top eight levels of quotations for each NMS stock displayed by each exchange, as part of the firm’s process of taking market snapshots and routing ISOs to protected quotations. If there was no protected quote among the top eight quotations (because of a prevalence of odd lots in the direct market data feeds), the firm’s electronic order management system did not route an ISO to that exchange. As a result, the firm executed potential trade-throughs without routing necessary ISOs.
Further, a firm trading desk manually executed orders outside of the National Best Bid or Offer (NBBO) price for customer facilitations and manually executed certain position transfers outside the NBBO during market hours, resulting in off-exchange trade-throughs of NMS stocks. The firm then allowed tradethroughs as a result of this manual order execution that did not qualify for a Rule 611(b) exception. The firm also routed ISOs with incorrect FIX tag information from the customer regarding an associated clearing firm, which resulted in exchanges rejecting ISOs. This resulted in the firm executing trade-throughs without routing necessary ISOs. Moreover, the firm did not conduct regular surveillance of its Rule 611 compliance program to detect the above-referenced issues.
The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with Exchange Act Rule 611. The firm’s supervision process did not include a system, or written procedures designed to detect and review potential trade-throughs reported with an Outbound ISO Exception modifier without simultaneously routed ISOs. Further, the firm’s WSPs did not include specific guidance for supervisors regarding how to review the validity of Exchange Act Rule 611 exception modifiers applied to trade-throughs.
In addition, the firm’s supervisory system and WSPs were not reasonably designed to detect and review trade-throughs that resulted from the firm’s electronic order management system only ingesting and processing market data from the national exchanges for the top eight price levels of quotations for NMS stocks. The firm’s supervisory system and WSPs were also not reasonably designed to detect and review manually executed trade-throughs by the firm’s trading personnel on one of its trading desks.
