Virtu Americas LLC (f/k/a KCG Americas LLC) has agreed to pay a fine of $175,000. This comes as a part of a settlement agreement with the US Financial Industry Regulatory Authority or FINRA.
Failure To Route Orders As Well As They Could
The violation of FINRA rules happened during the 1st of September, 2015, and the 21st of August, 2017, referred to as the Review Period. During this time, Virtue had failed to provide the best execution when it comes to 13,136 orders, in particular. These orders were received from another broker-dealer, and Virtu failed to use reasonable diligence in order to conclude what was the best market for the subject securities. This, in turn, caused a failure to buy and sell in these best markets, which resulted in the customers getting prices that were not as favorable as they could be within the relevant market conditions.
New Developments Causing Issue
In particular, the 1st of September, 2015, signified the beginning of the firm accepting orders for execution outside of normal trading hours, going as early as 04:00 AM. This stands in contrast to normal trading hours, which are from 09:30 AM to 04:00 PM. However, the firm started to accept orders that were routed earlier than 08:00 AM and 08:15 AM, respectively, by the request of two broker-dealer clients. In particular, these orders were “hold and release” orders.
The order management system of Virtu is designed to address hold and release orders through crossing any buy and sell orders that were marketable against each other, first, at the midpoint of the National Best Bid and Offer (NBBO). From there, when the crossing process was complete, hold and release orders were subsequently released for execution by the firm’s electronic market making system.
A Glitch In the System
However, the Review Period saw a programming error that occur within the order management system of the firm. This error saw specific hold and release orders that were executed by the electronic market making system not go through the crossing process to completion. These hold and release orders were received, then executed outside of normal trading hours, being marketable against each other and designed by each customer for execution at the same time.
Even so, these orders were not executed against each other at the NBBO midpoint. These orders were executed separately, doing so on a principal basis at the NBBO or a price better than the NBBO. Even so, these prices were less favorable than the NBBO midpoint.
The end result is 13,136 hold and release orders being affected, with a total amount of customer harm calculated at $164,137.70