The Financial Industry Regulatory Authority (FINRA) has imposed a fine on GTS Securities LLC for alleged violations of FINRA rules.

From October 2019 to the present, GTS failed to establish, document, and maintain a system of risk management controls and supervisory procedures reasonably designed to prevent the entry of erroneous orders in violation of Section 15(c)(3) of the Securities Exchange Act of 1934, Exchange Act Rules 15c3-5(b) and 15c3-5(c)(1)(ii), and FINRA Rules 3110 and 2010.

On October 23, 2019, GTS routed 635 erroneous orders to the market, which were generated through the firm’s trading engine by three of the firm’s trading algorithms. The three algorithms generated standard limit orders and market maker peg orders (MMPOs). MMPOs are limit orders that are continuously repriced by the exchange to a specified offset from the National Best Bid or Offer (NBBO).

Before the open on October 23, 2019, GTS deployed a technology change to its trading engine that resulted in the firm’s outgoing orders for the three algorithms not containing an MMPO instruction. The orders triggered GTS’s price band risk control, a pre-trade hard block that rejects orders priced a specified percentage through the reference price (i.e., the last sale or the previous day’s close if no last sale), which, in turn, triggered internal rejection alerts and prevented the orders from being sent to the market.

However, GTS manually disabled the control for the three algorithms to allow the orders to be sent to the market, based on a failure to detect the impact of the technology change on its MMPOs and a mistaken conclusion that the price band risk control was malfunctioning. As a result, GTS routed a total of 635 erroneous orders to the market with limit prices significantly away from the prevailing NBBO. On October 23, 2019, GTS submitted clearly erroneous filings.

Of the 635 erroneous orders, 348 received partial or full execution for a total notional value of over $1.5 million. In addition, 33 trades were busted, including seven by Nasdaq. The remaining erroneous orders were not executed because GTS detected that they were erroneous after routing them and halted them.

From October 2019 to the present, GTS failed to establish, document, and maintain a system of risk management controls and supervisory procedures reasonably designed to prevent the entry of erroneous orders.

During this period, GTS’s price band risk control was not reasonably designed to prevent the entry of erroneous orders with respect to standard limit orders generated by the three trading algorithms relevant to the October 23, 2019 erroneous orders and certain additional trading algorithms routing to the Nasdaq exchanges. GTS set its price band risk control parameter at 50% from the reference price for standard limit orders generated by these trading algorithms.

This parameter was not reasonably designed to prevent the entry of erroneous orders because it was substantially higher than the parameters maintained by the national securities exchanges to review for clearly erroneous transactions, and GTS did not provide a reasonable rationale supporting the firm’s threshold.

Further, from October 2019 to at least January 2022, when the firm enhanced its procedures, GTS had no written policies, procedures, or controls regarding the process and criteria for overriding or disabling a market access risk control, including the circumstances under which firm personnel could disable the firm’s price controls.

Therefore, GTS violated Exchange Act § 15(c)(3), Exchange Act Rules 15c3-5(b) and 15c3-5(c)(1)(ii), and FINRA Rules 3110 and 2010.

The firm has agreed to a censure and a total fine of $100,000, of which $50,000 must be paid to FINRA. The remainder of the fine will be paid to Nasdaq.