Velox Clearing LLC has agreed to pay a fine of $500,000 as a part of a settlement with the Nasdaq Enforcement Department.
From May 13, 2019, through the present (the “Relevant Period”), Velox’s customers consisted of Introducing Firms domiciled inside the United States and regulated by FINRA and Introducing Firms located outside of the United States and regulated by the SFC in Asia.
While a majority of the Firm’s Introducing Firms are domiciled inside the United States, the vast majority of transactions routed through the Firm’s OMS during the Relevant Period originated from its foreign-based Introducing Firms trading through non- disclosed omnibus accounts. Of those transactions, a majority originated from two customers, one of which is an Affiliated Customer.
During the Relevant Period, the Firm failed to implement a system of supervision and surveillance to identify potentially manipulative trading on its platforms.
Specifically, the Firm failed to (1) establish and maintain a supervisory system, including written supervisory procedures (“WSPs”), reasonably designed to monitor for potentially manipulative trading on its platform, (2) reasonably respond to red flags concerning potential manipulative trading identified by brokers it routed order flow to (“Routing Brokers”), and (3) respond reasonably to indicia that its Introducing Firms’ supervisory systems were not reasonably designed to surveil for potentially manipulative trading.
Moreover, the Firm failed to implement a reasonably designed supervisory system despite the heightened risks presented by omnibus accounts.
Velox’s failure to implement a system of surveillance for potentially manipulative trading likely resulted in potentially manipulative trading occurring on the Nasdaq market during the Relevant Period. Based on the conduct described in this AWC, Velox violated Nasdaq Rules 3010 and 2010A (for conduct before December 6, 2019) and General 9, Sections 1 and 20 (for conduct on or after December 6, 2019).
On top of the $500,000 fine, the firm has consented to a censure and an undertaking to retain at its own expense an independent consultant not unacceptable to the Exchange to review the reasonableness of its policies, systems, procedures (written or otherwise) relating to the detection and prevention of potentially manipulative trading activity and to compliance with Nasdaq General Rule 9, Sections 1 and 20.
