SpeedRoute, a company which provides market access and routing/execution services to broker-dealer clients on an agency basis, has agreed to pay a fine of $310,000 as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).

From October 1, 2014 through August 17, 2017, SpeedRoute failed to establish and maintain a supervisory system, including supervisory procedures, reasonably designed to achieve compliance with rules prohibiting manipulative activity, including layering, spoofing, and prearranged and wash trades.

The firm’s written supervisory procedures (WSPs) included a list of real-time monitoring features and post-trade reports available to the firm, but the WSPs did not describe how the firm should use the reviews to identify potentially manipulative conduct.

Despite the lack of WSPs reasonably designed to cause the firm to review customer activity for potentially manipulative trading, the firm relied, in part, on manual reviews of trade blotters to detect potentially manipulative conduct. A single individual employed by SpeedRoute at the time conducted the reviews. Such manual reviews, conducted by one individual, were unreasonable given the number of orders the firm routed. For example, SpeedRoute routed an average of approximately 10 million orders per day.

According to SpeedRoute, it conducted supervisory reviews for potentially manipulative trading activity by using both real-time alerts and certain surveillance reports, but the firm was unable to provide evidence that it conducted such reviews.

For reviews where parameters were available, the parameters were set such that they would have excluded certain potentially manipulative activity, such as wash trades, spoofing, and layering.

From September 6, 2017 through March 6, 2018, SpeedRoute failed to comply with various provisions of Securities Exchange Act Rule 15c3-5 relating to establishing, monitoring, and amending customer credit limits and conducting annual reviews and certifications of the effectiveness of its market access risk management controls and supervisory procedures.

This way, SpeedRoute violated NASD Rule 3010 (for conduct prior to December 1, 2014), FINRA Rule 3110 (for conduct on or after December 1, 2014), Section 15(c)(3) of the Securities Exchange Act of 1934, Exchange Act Rule 15c3- 5(c)(1)(i) and 15c3-5(e), and FINRA Rule 2010.

In addition, from September 2014 through November 2020, SpeedRoute submitted more than 1.1 billion reports to the Order Audit Trail System (OATS) with incorrect codes in certain fields. Approximately 850 million such reports occurred between September 2014 m September 2015. SpeedRoute also failed to establish, maintain, and enforce written procedures that were reasonably designed to achieve compliance with its OATS reporting obligations.

Based on the foregoing, SpeedRoute violated FINRA Rule 7450, FINRA Rule 3110 (for conduct on and after December 1, 2014) and NASD Rule 3010 (for conduct prior to December 1, 2014), and FINRA Rule 2010.

On top of the fine, the firm has agreed to a censure.