FINRA fines Barclays Capital for failure to apply market access controls
Barclays Capital Inc has agreed to pay a fine of $350,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From February 2014 through September 2019, Barclays’ Index Options Flow Derivatives Trading Desk submitted orders to participate in monthly Special Opening Quotations (SOQs) of certain volatility products. The Derivatives Desk entered the value of the position it sought to obtain in the SOQ into one of its risk management systems. The System had the ability to execute options orders, although this was not its primary use.
During the relevant period, the Derivatives Desk was the only desk at the firm that used the System to enter and execute orders.
In 2014, Barclays implemented its Global Electronic Trading Governance and Controls Policy, which was intended to identify all firm systems that required the application of market access controls and procedures. Barclays mischaracterized the System as not offering order entry and execution functionality and excluded the System from the Policy. As a result, between February 2014 and September 2019, the firm did not apply market access controls and procedures to orders that the System generated and routed.
Barclays’ failure to apply market access controls and procedures to the System resulted in the firm participating in 48 monthly SOQs and routing approximately 19,500 orders for 2,500,000 contracts to the market unchecked, of which approximately 9,500 orders for 1,125,000 contracts executed. Further, as a result of this failure, the firm did not prevent the entry of erroneous orders totaling $11,800,000 rather than the intended $118,000 through participation in an SOQ on June 19, 2019.
This caused the Derivatives Desk to exceed its assigned $4 billion capital limit by approximately $8 billion.
After that date, Barclays temporarily stopped using the System to enter orders. Barclays also characterized the System as in-scope for purposes of the Policy and, beginning in September 2019, applied market access controls and procedures to the System’s order flow.
As a result of the failure to apply market access controls and procedures to the System, Barclays was found to have violated Section 15(c) of the Exchange Act, Rules 15c3-5(b) and (c) thereunder, and FINRA Rule 2010.
On top of the fine, Barclays has agreed to a censure.