Velocity Clearing, LLC
The findings stated that the firm’s WSPs required the firm to monitor customer trading activity for the use of any fraudulent device, scheme, or course of business in connection with the purchase or sale of securities. The firm’s WSPs did not provide any guidance as to what factors or information to consider when assessing surveillance alerts or explanations offered by traders or customers for the trading activity under review.
In addition, the WSPs did not address whether the aggregate activity or the number of surveillance alerts generated by a particular customer (or individual trader of the customer) was relevant to the firm’s review, or how to document the review and disposition of an alert. Nor did the WSPs provide guidance on when and how to escalate an alert for a firm principal to conduct a secondary review.
The firm used an automated surveillance system to identify potentially manipulative trading such as spoofing, layering, cross trades, wash trading, and prearranged trading. However, the firm had not enabled the system’s prearranged trading surveillance, even after the firm received inquiries from other broker-dealers about potential prearranged trading by more than 40 of the firm’s customers. Ultimately, the firm enabled the prearranged trading surveillance alert offered by its automated surveillance system, but the firm never reviewed the more than 10,000 alerts generated by this surveillance over a two-month period.
The WSPs delegated responsibility for reviewing surveillance alerts to the firm’s compliance department, but their review of those alerts was not reasonable. The firm closed more than 147,000 alerts identifying potentially manipulative trading by its customers— including potential cross trades, spoofing, layering, and wash trading—without conducting any investigation into the trading or the customers’ potential patterns of trading over time. In fact, the firm did not conduct any supervisory review of the alerts after they were closed. While many alerts were closed quickly without reasonable review, others were not addressed at all. The firm lacked the staffing to reasonably investigate and respond to surveillance alerts. In addition, compliance staff were not provided with any written guidance or training on how to review surveillance alerts. The volume of alerts, lack of adequate staffing, and lack of training or guidance prevented the firm’s compliance personnel from conducting reasonable reviews and follow-up investigations.
Subsequently, the firm replaced its surveillance system with a new automated surveillance system. Since that time, the firm’s new surveillance system has generated approximately 15.2 million alerts identifying potentially manipulative trading by the firm’s customers, including alerts for layering, spoofing, and wash trading. The firm closed nearly all such alerts without any investigation or action. As of early 2025, over 5.2 million alerts identifying potentially manipulative trading remained unreviewed.
