FINRA and Affiliated Exchanges Fine Credit Suisse for Supervision and Market Access Violations
30 December 2019: FINRA, Cboe Global Markets, the Nasdaq Stock Market LLC, the New York Stock Exchange, and their affiliated exchanges in the US announced that they censured Credit Suisse Securities (USA) LLC, and fined the firm a total of $6.5m for supervisory violations, and violations of various provisions of Rule 15c3-5 of the Securities Exchange Act of 1934 (known as the Market Access Rule).
Over the course of four years from 2010 to 2014, Credit Suisse offered its clients, which included broker-dealers and other institutional entities, some of whom were foreign unregistered entities, direct market access to numerous exchanges. The firm executed more than 300bn shares on behalf of its direct market access clients. During part of that time, certain of the firm’s direct market access clients engaged in trading activity that generated more than 50,000 alerts at FINRA and the exchanges for potential manipulative trading, including spoofing, layering, wash sales and pre-arranged trading. Three of the firm’s direct market access clients accounted for the majority of the 50,000 alerts for potentially manipulative activity. The same three clients at their peak accounted for about 20 percent of the firm’s overall order flow.
FINRA and the exchanges found that during most of the relevant time period, Credit Suisse did not establish a supervisory system, including written supervisory procedures, reasonably designed to monitor for potential spoofing, layering, wash sales and pre-arranged trading by its direct market access clients. As a result, orders for billions of shares entered the US markets without being subjected to post-trade supervisory reviews for such potential manipulative activity. Moreover, Credit Suisse was put on notice of gaps in its surveillance system by correspondence with one of its direct market access clients and by an internal audit report.
In addition, Credit Suisse violated numerous provisions of the Market Access Rule, which requires broker-dealers that provide their customers access to an exchange or an alternative trading system to reasonably manage the financial and regulatory risks of providing such access. From 2011 to 2017, Credit Suisse violated the Market Access Rule’s provisions related to the prevention of erroneous orders, the setting of credit limits and the firm’s annual review of the effectiveness of its market access controls and supervisory procedures.
“As gatekeepers to the US markets, it is critical that firms implement a robust supervisory system and actively surveil for manipulative activity in order to protect the integrity of the markets,” said FINRA and the exchanges. “This case demonstrates that firms who do not reasonably do so will be held accountable.”