
By Oyster Consulting LLC
Subscribe to our original industry insightsRecently the SEC issued an action against a firm for violating the market access rule in connection with a trading incident that resulted in the erroneous executions of options contracts. The Market Access Rule (SEC Rule 15c3-5) requires broker-dealers with market access to establish, document and maintain a system of risk management controls and supervision processes to limit financial exposure and ensure compliance with all regulatory requirements. 15c3-5 controls are ideally built into business processes, and are supported by systematic and operational controls with real-time alerts & monitoring.
The firm mistakenly sent 16,000 mis-priced options orders to various option exchanges before the start of regular market trading. Although the firm managed to stop the creation of orders and began canceling the erroneous ones sent for execution, shortly after the market opened approximately 1.5 million of the orders were still executed.
According to the Order, the error was the result of several failures:
“Firms that have market access need to have proper controls in place to prevent technological errors from impacting trading,” said Andrew Ceresney, Director of the SEC Enforcement Division.
Oyster has provided consulting services to well-known and respected High Frequency Traders and automated trading firms. We have experience with high profile 15c3-5 assessments, certifications, and independent consultant engagements on both FINRA and SEC matters. Oyster can perform a comprehensive assessment of your 15c3-5 compliance program, your technology platform, risk management and supervisory practices.
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