Velocity Clearing, LLC has agreed to pay a fine of $1 million for alleged non-compliance with the rules prohibiting manipulative trading activity by its customers.

A settlement published by the Financial Industry Regulatory Authority (FINRA) states that, from December 2019 through the present, Velocity failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with rules prohibiting manipulative trading activity by its customers.

During the relevant period, Velocity’s WSPs required the firm to monitor customer trading activity for the use of any fraudulent device, scheme, or course of business in connection with the purchase or sale of securities.

Velocity’s WSPs did not provide any guidance as to what factors or information to consider when assessing surveillance alerts or explanations offered by traders or customers for the trading activity under review.

The WSPs also did not address whether the aggregate activity or the number of surveillance alerts generated by a particular customer (or individual trader of the customer) was relevant to the firm’s review, or how to document the review and disposition of an alert. Nor did the WSPs provide guidance on when and how to escalate an alert for a firm principal to conduct a secondary review.

From December 2019 through June 2023, Velocity used an automated surveillance system to identify potentially manipulative trading such as spoofing, layering, cross trades, wash trading, and prearranged trading.

However, from December 2019 through December 2022, the firm had not enabled the system’s prearranged trading surveillance, even after Velocity received inquiries from other broker-dealers about potential prearranged trading by more than 40 of the firm’s customers.

In December 2022, Velocity enabled the prearranged trading surveillance alert offered by its automated surveillance system, but the firm never reviewed the more than 10,000 alerts generated by this surveillance between December 2022 and February 2023.

From December 2019 through June 2023, Velocity’s surveillance system generated nearly 150,000 alerts identifying potentially manipulative trading by the firm’s customers, including more than 100,000 alerts for cross trades and spoofing.

The WSPs delegated responsibility for reviewing these surveillance alerts to the firm’s Compliance Department, but the Compliance Department’s review of those alerts was not reasonable.

Between December 2019 and June 2023, Velocity closed more than 147,000 of the alerts identifying potentially manipulative trading by its customers—including potential cross trades, spoofing, layering, and wash trading—without conducting any investigation into the trading or the customers’ potential patterns of trading over time.

Approximately one-third of the surveillance alerts were closed on the same day they were opened, and Compliance Department staff often closed hundreds or thousands of surveillance alerts on a single day. Velocity did not conduct any supervisory review of the alerts after they were closed. While many alerts were closed quickly without reasonable review, others were not addressed at all.

Velocity dedicated insufficient resources to reviewing surveillance alerts. For part of the relevant period, the responsibility to review alerts fell to a single employee who also spent a significant amount of time on other responsibilities. Velocity later hired five additional Compliance staff but still lacked the staffing to reasonably investigate and respond to surveillance alerts.

In addition, Compliance staff were not provided with any written guidance or training on how to review surveillance alerts. The volume of alerts, lack of adequate staffing, and lack of training or guidance prevented the firm’s Compliance personnel from conducting reasonable reviews and follow-up investigations.

In July 2023, Velocity replaced its surveillance system with a new automated surveillance system. Since that time, the firm’s new surveillance system has generated approximately 15.2 million alerts identifying potentially manipulative trading by the firm’s customers, including alerts for layering, spoofing, and wash trading. The firm closed nearly all such alerts without any investigation or action.

As of early 2025, over 5.2 million alerts identifying potentially manipulative trading remained unreviewed.

Accordingly, Velocity violated FINRA Rules 3110 and 2010.

The firm has agreed to:

• a censure;
• a $1,000,000 fine, of which $81,056 shall be paid to FINRA, with the remainder of the fine to be paid to Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; Cboe BYX Exchange, Inc.; Cboe BZX Exchange, Inc.; Investors Exchange LLC; Members Exchange LLC; MIAX Pearl, LLC; New York Stock Exchange LLC; NYSE Arca, Inc.; The Nasdaq Stock Market LLC; Nasdaq BX, Inc.; and Nasdaq Phlx LLC; and
• an undertaking to retain an independent consultant.