The Financial Industry Regulatory Authority (FINRA) has fined SpeedRoute LLC for alleged rule violations.

From April 2022 to the present, SpeedRoute failed to establish, document, and maintain risk management controls and supervisory procedures reasonably designed to manage the financial risks associated with its provision of market access, in violation of Section 15(c)(3) of the Securities Exchange Act of 1934, Exchange Act Rules 15c3-5(b), 15c3- 5(c)(1)(i), and 15c3-5(c)(1)(ii), and FINRA Rules 3110 and 2010.

From August 2017 through December 2023, SpeedRoute failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with applicable federal securities laws and FINRA rules prohibiting potentially manipulative trading, in violation of FINRA Rules 3110 and 2010.

The firm’s supervisory system, including its written supervisory procedures, for potentially manipulative trading were unreasonable in several respects.

First, the firm used unreasonably designed parameters to detect and prevent wash sales, layering, and spoofing during the period August 2017 to October 2020.

For example, although the firm’s clients traded in over-the counter (OTC) securities, the firm’s surveillance for wash sales did not include OTC securities until December 2019. In addition, the firm’s surveillance system for wash sales did not detect potential wash sales that occurred using partial executions, even though wash sales can occur using partial executions. Further, the firm’s surveillance for layering and spoofing only generated an alert if there were seven or more potentially layered open orders, even though layering can be accomplished with fewer orders.

Second, from August 2017 to December 2023, SpeedRoute failed to allocate sufficient resources to reviewing surveillance alerts, and the firm’s employees were not sufficiently experienced or trained to review surveillance alerts, resulting in delayed and incomplete reviews. Despite the volume of alerts generated, the firm assigned only one employee (except for three months in 2021) to review alerts for potentially manipulative trading in addition to their other compliance duties.

Additionally, the employees assigned at different times to review surveillance alerts were not sufficiently trained or experienced to identify or investigate potentially manipulative trading. For example, the reviewer from August 2019 through June 2021 had no prior experience conducting surveillance reviews for potentially manipulative trading and the firm provided no training to the

employee on how to identify manipulative trading patterns, which alerts required investigation, or when an alert required escalation.

As a result, the reviewer was unable to timely review the thousands of alerts being generated each month, often fell weeks or months behind in reviewing the alerts, and in some instances failed to conduct reviews at all.

Third, SpeedRoute adopted unreasonably narrow sampling methods to determine which alerts to review. Beginning in December 2019, the firm only reviewed alerts where the client generated three or more alerts in one security in a single day, or six or more alerts in one security in a single week. The firm applied this sampling methodology to layering alerts until August 2021, and to spoofing alerts until March 2022.

By adopting these unreasonably narrow sampling methods, potentially manipulative trading by clients who generated fewer alerts, or alerts in different securities, went unreviewed.

Fourth, SpeedRoute did not reasonably investigate the surveillance alerts it reviewed.

From August 2017 to at least August 2021, the firm’s reviewers made no attempt to identify patterns of potentially manipulative activity. The firm also did not track patterns of activity by trader to identify traders that generated surveillance alerts over time, such as where two traders at the same client executed trades consistently against each other, or where a trader at one client had trades executed consistently against a particular trader at a different client, both of which could indicate pre-arranged wash or matched trading.

Moreover, when investigating alerts, the firm frequently accepted vague, repetitive, or general responses from its clients without taking reasonable action to assess or confirm the responses.

Additionally, the firm’s reviewers would unreasonably resolve spoofing and layering alerts with no further investigation if they determined that the security was the subject of recent news reports. The existence of news about a security is irrelevant to whether trading activity in that security is spoofing or layering.

Fifth, until December 2020, SpeedRoute’s WSPs were unreasonable. Before October 2019, the firm’s WSPs did not reference its automated third-party surveillance system or the review of surveillance alerts from that system.

The firm amended its WSPs in October 2019 to reference its automated surveillance system, but the WSPs did not describe the steps reviewers should take or the factors reviewers should consider when reviewing alerts. The firm remediated by amending its WSPs in December 2020 to describe the surveillance review and escalation process.

By failing to establish and maintain a reasonable supervisory system and procedures, SpeedRoute violated FINRA Rules 3110 and 2010.

From at least 2017 through the present, SpeedRoute failed to develop and implement a written anti-money laundering (AML) program reasonably designed to achieve and monitor its compliance with the Bank Secrecy Act (BSA) and the implementing regulations thereunder, in violation of FINRA Rules 3310 and 2010.

For these violations, SpeedRoute was fined $300,000, of which $75,000 must be paid to FINRA.