The Department of Market Regulation filed a complaint against Los Angeles-based Electronic Transaction Clearing, Inc. President and COO Kevin Murphy and former Chief Compliance Officer David DiCenso for supervisory violations related to direct and sponsored market access to both registered and unregistered market access customers across 10 market centers, including NASDAQ and NYSE.
According to the charges, Electronic Transaction Clearing failed to maintain adequate supervisory systems, including written supervisory procedures (WSPs) designed to investigate red flags and monitor customer activity for signs of suspicious and potentially manipulative trades, allowing thousands of market access customers and foreign traders to flood the various exchanges with thousands of potentially manipulative wash trades and other suspicious activity, which in turn earned the firm millions of dollars from executing and clearing such potentially harmful trades.
The report includes the following exchanges as affected: BATS, BATS Y, EDGA, EDGX, NADSAQ Stock Market, NASDAQ OMX BX, NASDAQ OMX PSX, New York Stock Exchange (NYSE), NYSE Arca Equities, and NYSE MKT (aka NYSE Amex).
The complaint alleges that the firm violated FINRA and SEC Market Access Rules by failing to monitor high-volume and frequency trading activity involving thousands of foreign-based traders, meaning that the California-based firm could not reasonably monitor, detect or prevent suspicious and manipulative trading activity.
The document states that FINRA issued several industry-wide notices both prior to and during the violative conduct period, meaning that in FINRA's opinion, Electronic Transaction Clearing should have been aware of the regulatory and compliance risks associated with the market access business.
Furthermore, investigators found that "numerous" regulators had previously sent inquiries or findings to the firm regarding suspicious and potentially manipulative trading conduct and, nonetheless, the firm failed to maintain adequate supervisory systems including WSPs.