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August 18, 2014 at 09:36 AM
The Financial Industry Regulatory Authority said Monday that it has filed a complaint against Los Angeles-based Wedbush Securities Inc. for systemic supervisory and anti-money laundering violations in connection with providing direct market access and sponsored access to broker-dealers and nonregistered market participants.
During the period at issue, FINRA says that Wedbush was one of the securities industry’s largest market access providers, which included overseas high-frequency, high-volume, algorithmic day-trading firms, and made millions of dollars from its market access business.
The Securities and Exchange Commission announced charges in early June against the firm, based in Los Angeles, and two officials accused of violating the agency’s market access rule, which requires firms to have adequate risk controls in place before providing customers with access to the market.
The SEC in its charge alleges that Wedbush, which the agency said has consistently ranked as one of the five largest firms by trading volume on Nasdaq, failed to maintain direct and exclusive control over settings in trading platforms used by its customers to send orders to the markets.
The FINRA complaint alleges that from January 2008 through August 2013, Wedbush failed to dedicate sufficient resources to ensure appropriate risk management controls and supervisory systems and procedures. “This enabled its market access customers to flood U.S. exchanges with thousands of potentially manipulative wash trades and other potentially manipulative trades, including manipulative layering and spoofing,” FINRA states.
“Despite its obligations to monitor, review and detect suspicious and potentially manipulative trades, Wedbush largely relied on its market access customers to self-monitor and self-report such trading without sufficient oversight and controls to detect ‘red flags,’” FINRA said.
