SpeedRoute LLC
Speedroute LLC was fined a total of $300,000 for failing to establish, document, and maintain risk management controls and supervisory procedures reasonably designed to manage the risks associated with its market access activity. The findings stated that the firm’s deficiencies included that it failed to implement reasonable credit controls and procedures and failed to implement reasonable erroneous order controls and procedures. The firm did not consider each new client’s financial condition when setting initial credit limits. Instead, the firm established limits by comparing limits each client proposed against limits for existing clients that the firm considered comparable to the new one. The firm was unable to provide a reasonable rationale or documentation, including WSPs, supporting its methodology for determining initial credit limits, such as its process for determining which existing clients were comparable and identifying which existing clients to include or exclude in its comparisons.
In addition, the firm failed to maintain reasonable maximum order rate and duplicate order rate limits. The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to detect and investigate potentially manipulative trading. The firm used unreasonably designed parameters to detect and prevent wash sales, layering, and spoofing. The firm’s surveillance for layering and spoofing only generated an alert if there were seven or more potentially layered open orders, even though layering can be accomplished with fewer orders.
The firm failed to allocate sufficient resources to reviewing surveillance alerts, and the firm’s employees were not sufficiently experienced or trained to review surveillance alerts, resulting in delayed and incomplete reviews. Despite the volume of alerts generated, the firm assigned only one employee (except for a three-month period) to review alerts for potentially manipulative trading in addition to their other compliance duties. As a result, the reviewer was unable to timely review the thousands of alerts being generated each month, often fell weeks or months behind in reviewing the alerts, and in some instances failed to conduct reviews at all. The firm also adopted unreasonably narrow sampling methods to determine which alerts to review and did not reasonably investigate the surveillance alerts it did review.
The findings also included that the firm failed to develop and implement a reasonably designed AML compliance program. The firm did not tailor its AML program to reasonably detect and cause the reporting of suspicious transactions in low-priced securities as its AML procedures did not identify red flags associated with suspicious trading in low-priced securities or provide guidance about how to identify or address those red flags. The firm’s AML procedures chiefly identified red flags related to retail customer account activity, even though it had no retail customers, and those red flags were not applicable to its business.
Later when the firm decided to stop trading in low-priced over-the-counter (OTC) securities, it updated its AML procedures to state that it no longer accepted orders in low-priced OTC securities. However, the firm did not reasonably implement those procedures, and it inadvertently continued to accept orders and execute trades in certain low-priced securities and did not reasonably monitor this trading for suspicious activity. The firm also conducted independent testing of its AML compliance program that was not reasonably designed because it did not evaluate whether its program could reasonably be expected to detect and cause the reporting of suspicious trading in low-priced securities and whether it had a reasonable due diligence program for its foreign financial institution accounts.
