Seaport Global Securities LLC has agreed to pay a fine of $125,000 as a part of a settlement with Financial Industry Regulatory Authority (FINRA).
From at least March 2020 to the present, Seaport maintained an options trading desk, which received options orders from its institutional customers and, on an agency basis, solicited liquidity for certain of those orders from institutional counterparties manually (i.e., not through automated means).
Once the firm had an agreement on price and quantity between its customer and a counterparty, the firm sent the order to an options exchange floor broker to announce the trade. The transaction was executed once it was announced and printed by the floor broker, and at that point, Seaport could only change the terms of the transaction by requesting that the floor broker bust and adjust the trade.
During this time period, Seaport failed to establish and maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to supervise its options trading desk.
Specifically, the firm had no supervisory systems or WSPs for reviewing manual options trades that were busted and adjusted by its options trading desk until September 2021. At that time, the firm implemented WSPs requiring its options traders to seek an Options Principal’s approval and to notify the firm’s compliance department when requesting to bust and adjust a trade.
However, the firm’s procedures did not provide any guidance to the firm’s options traders or principals concerning the circumstances under which the options desk was permitted to request that a trade be busted and adjusted to ensure compliance with applicable FINRA rules.
The firm also lacked a system or procedure to address compensation for the firm’s customer in the event the requested bust and adjust would result in a worse price for the customer.
Additionally, throughout the relevant period, the firm had no supervisory systems or procedures, including WSPs, to verify the completeness and accuracy of the options desk’s order memoranda for busted and adjusted trades.
On four occasions from March 2020 through June 2021, Seaport’s options traders directed floor brokers to bust and adjust manual options trades either at the solicited counterparty’s request or due to firm errors, resulting in prices less favorable to the firm’s customers than when the trades were originally executed. In each of these instances, the firm performed no supervisory review of the trader’s request to bust and adjust the trade to ensure that the bust and adjust complied with applicable FINRA rules or to determine whether to compensate the customers.
Therefore, Seaport violated FINRA Rules 3110(a) and (b) and 2010.
From March 2020 through June 2021, Seaport failed to make and keep current accurate memoranda of the four busted and adjusted manual options orders described above. For each transaction, Seaport failed to document the terms of the customer’s original order and instead only documented the terms of the re-executed transaction after the original transaction had been busted and adjusted. Seaport also recorded inaccurate order entry times on order memoranda for three of the transactions and inaccurate order receipt times on order memoranda for two of the transactions.
Therefore, Seaport violated Exchange Act § 17(a), Exchange Act Rule 17a-3, and FINRA Rules 4511(a) and 2010.
On top of the $125,000 fine, the firm has agreed to a censure and an undertaking that a member of its senior management who is a registered principal of the firm must certify in writing that the firm has remediated the issues and implemented a supervisory system, including WSPs, reasonably designed to achieve compliance with § 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-3, and FINRA Rules 3110 and 4511(a).
Seaport Global Securities LLC has been a FINRA member since January 2002. The firm is a mid-size independent investment bank that offers capital market advisory, sales, research, and trading services. The firm is headquartered in New York, New York and has 219 registered representatives in 21 branch offices.
