Velox Clearing LLC has agreed to pay a settlement amounting to $500,000 following a decision by Nasdaq’s Enforcement Department concerning regulatory violations. The violations were noted during the period starting May 13, 2019, up until now, and primarily involved the firm’s dealings with various Introducing Firms. These firms include those based in the United States, which are regulated by the Financial Industry Regulatory Authority (FINRA), as well as international Introducing Firms overseen by the Securities and Futures Commission (SFC) in Asia.
Although a sizable portion of Velox’s customer base is composed of U.S.-based Introducing Firms, most of the transactions processed by the firm during the relevant period were from foreign customers utilizing undisclosed omnibus accounts. A significant number of these transactions originated from two main clients, one of which is associated with Velox.
Throughout the specified timeframe, Velox’s operations were found lacking in appropriate supervisory and surveillance systems to detect potentially manipulative trading activities. The firm did not adequately establish or maintain a written supervisory procedure that would support effective monitoring of trading activities on its platform. Moreover, it failed to respond effectively to indications of possible manipulative trading brought to its attention by the brokers responsible for routing orders, as well as not addressing signs that its Introducing Firms’ supervisory systems were deficient in monitoring such activities.
Additionally, the firm’s neglect to implement suitable supervisory protocols raised concerns, especially considering the heightened risks involved with omnibus accounts, which can obscure the identity of the underlying traders and their activities.
The absence of a surveillance system likely contributed to manipulative trading occurring within the Nasdaq market during the relevant period. Based on the findings presented, Velox was found in violation of specific Nasdaq rules, including Rules 3010 and 2010A prior to December 6, 2019, as well as General Rule 9, Sections 1 and 20 for activities occurring after that date.
In conjunction with the financial penalty, Velox has also agreed to accept a formal censure and will hire an independent consultant, acceptable to Nasdaq, to evaluate the adequacy of their policies, systems, and procedures. This review will focus on how well they detect and prevent potentially manipulative trading and ensure adherence to Nasdaq’s General Rule 9. This step is aimed at strengthening their operations and compliance measures moving forward.