Velox Clearing LLC has reached an agreement to pay a $500,000 fine as part of a settlement resulting from alleged violations of Nasdaq rules. The infractions occurred over a significant period, starting from May 13, 2019, to the present. The clientele primarily consisted of Introducing Firms based in the United States, which are regulated by FINRA, as well as those located internationally, regulated by the Securities and Futures Commission (SFC) in Asia.
Most transactions processed through Velox’s Order Management System (OMS) during this timeframe came from foreign-based Introducing Firms utilizing non-disclosed omnibus accounts. A notable portion of these transactions was attributed to two main customers, one being an affiliated entity.
Throughout the specified period, the company did not establish an adequate supervisory and surveillance system to identify potentially manipulative trading activities on its platforms. Key failures included:
1. The absence of a supervisory system paired with written supervisory procedures designed to effectively monitor for manipulative trading.
2. An inadequate response to warning signs regarding potential manipulative trading flagged by brokers handling the order flow.
3. Failing to address signs indicating that its Introducing Firms lacked sufficient supervisory systems to detect manipulative trading practices.
Additionally, the organization did not implement a proper supervisory system, despite the increased risks associated with managing omnibus accounts.
The lack of a surveillance system likely enabled manipulative trading to take place within the Nasdaq market during the relevant timeframe. Consequently, Velox’s actions were found to violate multiple Nasdaq rules, including Rules 3010 and 2010A, applying to actions before December 6, 2019, as well as General 9, Sections 1 and 20 for actions taken after that date.
In addition to the financial penalty, the firm has agreed to undergo a censure and undertake measures to engage an independent consultant, approved by the Exchange. This consultant will assess the adequacy and effectiveness of the firm’s policies and procedures, whether written or not, concerning the detection and prevention of potentially manipulative trading alongside compliance with Nasdaq’s General Rule 9, Sections 1 and 20.
This case highlights the regulatory expectations placed on firms in the financial industry regarding monitoring trading activities and ensuring compliance with established rules and procedures. Such oversight is crucial in maintaining the integrity of the market and preventing illicit trading practices.