Nasdaq fines RBC Capital Markets for poor market access risk management controls
RBC Capital Markets, LLC has agreed to pay a fine of $350,000 as a part of a settlement with Nasdaq.
FINRA, on behalf of Nasdaq, reviewed RBC’s compliance with Nasdaq’s rules and related supervisory requirements with respect to the firm’s financial and regulatory risk management controls and supervisory system, including supervisory procedures. The review covered the period from March 25, 2015 through March 3, 2020.
The review was prompted by RBC’s entry of eight erroneous orders over a five year period on Nasdaq on the following seven trade dates: March 25, 2015, February 12, 2016, November 21, 2016, December 19, 2016, October 1, 2018, December 21, 2018, and March 3, 2020. Based on the review, the Department of Enforcement found that the firm’s market access risk management controls and supervisory procedures were not reasonably designed to manage the financial and regulatory risks of the Firm’s market access business on Nasdaq.
For instance, on March 3, 2020, a trader on the Convertibles Desk intended to send an order to sell 190,000 shares of a security to the Firm’s Cash Desk. Instead, the trader erroneously sent the order as a market order to a firm algorithm, which routed it to the market. The order was executed immediately, with a total of 88,087 of the shares executed at a price of $42.24 at 15:16:45 and 15:16:46 on Nasdaq.
The Convertibles Desk’s proprietary order management system did not provide market access and therefore did not have any market access controls in place. When traders on the Convertibles Desk wanted to send an order to the market, they used another Firm OMS, which had market access, to do so. Convertibles Desk orders were not subject to any market access controls prior to being routed to the market. The firm discovered this issue as a result of erroneous order event on March 3, 2020.
The Convertibles Desk’s financial and regulatory risk management controls and supervisory procedures were not reasonably designed to address the risks presented by RBC’s market access business activity. Accordingly, the firm violated Rule 15c3-5(b), (c)(1), and (c)(2).
The firm has agreed to a fine of $350,000 to be paid jointly to Nasdaq, BYX, BZX, EDGA, and EDGX, of which $145,000 is allocated to Nasdaq. RBC also consents to a censure and an undertaking to revise the firm’s system of risk management controls and supervisory procedures.