Sumo Capital, LLC will pay a $100,000 fine as part of a settlement reached with Cboe Exchange, Inc. The firm did not admit to any violations of Exchange Rules or the Securities Exchange Act of 1934 and its accompanying rules.
Between January 2022 and the present, Sumo recognized deficiencies in its risk management systems and supervisory procedures, which are essential for addressing the financial, regulatory, and operational risks associated with its trading activities. Notably, Sumo’s risk management protocols did not appropriately document the reasoning behind its thresholds for pre-trade capital controls. Additionally, the firm failed to provide any evidence that could substantiate the reasonableness of its capital control thresholds.
Throughout this period, there was also a lack of documentation regarding adjustments made to the pre-trade control thresholds. Although the policies stated that adjustments by the Risk Manager should be documented, they did not mandate that the rationale behind such changes be recorded.
These lapses constitute violations of Rule 15c3-5(b) of the Exchange Act and Rule 8.2 of Cboe, as they indicate a failure to establish and maintain risk management procedures adequately tailored to the firm’s business activities.
Moreover, Sumo did not conduct a necessary annual review of its business activities related to market access to evaluate the effectiveness of its risk controls. Specifically, the firm missed a timely review in 2020, with the necessary assessment not completed until May 2021, well over a year after the previous review concluded in January of that year.
In addition, Sumo did not document the annual reviews for 2022 and 2023 properly. The annual review materials from these years did not specifically address Rule 15c3-5, nor did they provide a comprehensive assessment of the effectiveness of the firm’s risk management practices in relation to market access.
Furthermore, for the years 2020 and 2021, Sumo did not perform its annual obligation to certify that its risk management controls complied with stipulated regulatory paragraphs (b) and (c) of Rule 15c3-5. The certifications for both years did not bear the signature of the Chief Executive Officer or an equivalent officer, which is a requirement.
These findings indicate violations of Rule 15c3-5(e)(1) of the Exchange Act and Rule 8.2 of Cboe, highlighting Sumo’s failure to conduct timely periodic reviews of its market access activities in 2020 and to provide adequate documentation for its annual reviews in the following years.
Given the relevant disciplinary history associated with Rule 15c3-5, which includes a censure and a collective fine of $57,500 imposed in June 2021 for earlier infractions, Sumo has consented to the enforcement of the following actions: a formal censure and a monetary fine of $100,000 due to the recently identified rule violations and its prior disciplinary record.