Matrix Executions gets a slap on the wrist for violating Cboe rules
Matrix Executions has agreed to pay a fine as a part of a settlement with Cboe Exchange, Inc.
The firm neither admits nor denies that violations of Exchange Rules or the Securities Exchange Act of 1934 rules have been committed.
During April 2020 through October 2021, (the Review Period), Matrix Executions entered one order on the Exchange for purposes of testing as opposed to a genuine intent to execute bona-fide transactions through the Exchange’s Complex Automated Improvement Mechanisms (“C-AIM”). The firm then misused the Exchange’s mutual bust/adjust provisions, in that the nullifications that occurred resulted from the submission and execution of the test order rather than an error.
Specifically, Matrix entered one test order on AIM on the Exchange on July 2, 2020, which executed on the Exchange. Soon thereafter, Matrix submitted a Mutual Adjust/Bust form to the Exchange’s Trade Desk for the purpose of busting the test trade and the trade was nullified.
These acts, practices, and conduct constitute violations of Exchange Rule 5.38 by the firm, as well as a violation of Exchange Rule 6.5 by the firm.
Also, during the Review Period, the firm failed to submit Qualified Contingent Cross (QCC) trade information to the Exchange as required.
In addition, during the Review Period, Matrix Executions routed approximately 715 AIM orders for approximately 6,345 contracts with the contra response orders in the Market-Maker “M” capacity on behalf of a Customer at a time when that Customer held an appointment in the relevant option class, resulting in a total of 3,334 contracts executed.
Moreover, during the Review Period, Matrix submitted orders to FLEX AIM where the Agency Orders submitted were on behalf of multiple parties and then modified through post-trade allocations to the correct Market-Maker. Specifically, in four customer Complex FLEX AIM orders, the firm made post-trade allocation changes to the Agency orders, in that complex orders entered by one of the firm’s clients resulted in post-trade clearing edits to at least one leg of the order to an MMID not registered on Cboe with changes in the capacity, which potentially disadvantaged the customer side of the FLEX AIM.
Finally, during the Review Period, the firm failed to establish, maintain, and enforce written supervisory procedures (WSPs) and a system for applying such procedures reasonably designed to prevent and detect violations of Exchange Rules.
Specifically, while the firm’s WSPs contained general testing procedures, there was no reference in the WSPs to the Exchange’s testing environments, or any mention of Exchange provided test symbols.
In light of the alleged rule violations described above Matrix has consented to the imposition of a censure and a monetary fine in the amount of $10,000.