Cantor Fitzgerald & Co has agreed to pay a fine as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).
From April 1, 2016 through December 31, 2018 (the Review Period), the firm failed to implement policies and procedures that reasonably avoid displaying, or engaging in a pattern or practice of displaying, locking or crossing quotations in over-the-counter (OTC) Equity Securities, in violation of FINRA Rules 6437 and 2010.
Let’s note that FINRA Rule 6437 (the Locked/Crossed Rule) requires FINRA members to implement policies and procedures that reasonably avoid displaying, or engaging in a pattern or practice of displaying, locking or crossing quotations in any OTC Equity Security.
During the Review Period, Cantor Fitzgerald entered quotations that locked or crossed the market in OTC Equity Securities. In certain situations, the firm locked or crossed quotations in OTC Equity Securities, and either did not contact other market participants prior to locking or crossing the market, or otherwise failed to take reasonable steps to unlock or uncross the market after it displayed a quotation that locked or crossed the market.
Although the firm had in place certain policies and procedures designed to avoid locking and crossing quotations in OTC Equity Securities, those policies and procedures did not provide the firm’’s traders with reasonable guidance for how to avoid or resolve a locked or crossed market. For example, the firm employed a system-generated warning that appeared if a quotation entered by a firm trader would lock or cross the market.
Although its traders had the ability to manually override this warning system, the firm did not provide reasonable guidance to its traders regarding their obligations in entering quotations that may lock or cross markets, or what actions to take after entering quotations that locked or crossed the market.
Thus, during the Review Period, the firm failed to implement policies and procedures that were reasonably designed to avoid displaying, or engaging in a pattern or practice of displaying, locking or crossing quotations in OTC Equity Securities. Therefore, Respondent violated FINRA Rules 6437 and 2010.
Moreover, from April 1, 2016 through May 15, 2019, the firm also failed to establish, maintain, and enforce WSPs that were reasonably designed achieve compliance with FINRA Rule 6437.
Specifically, although the firm had issued a supervisory manual that required a supervisor to review a report that identified each instance of locked or crossed markets in OTC Equity Securities, it did not specify the process by which the supervisor was required to review the instances that were identified by the firm’s supervisory system.
On May 15, 2019, the firm sold its wholesale OTC market making business, which was the business that implicated the requirements of FINRA Rule 6437. As of that date, the firm ceased conducting business that would require compliance with FINRA Rule 6437.
As a result, the firm failed to establish, maintain, and enforce WSPs reasonably designed to achieve compliance with the firm’s obligations to avoid displaying, or engaging in a pattern or practice of displaying, locking or crossing quotations in OTC Equity Securities.
As a part of the settlement, the firm agrees to a censure and a fine of $50,000.
