The Securities and Exchange Commission (SEC) announced today that it is pursuing charges against Wedbush Securities for not having the proper risk controls in place. The agency said the firm and two of its executives violated the rule that requires proper controls be in place before customers receive access to the market.
Wedbush charged by SEC
In a press release today, the SEC accused Wedbush Securities of not maintaining exclusive and direct control over the settings in the trading platforms its customers use to send their orders to the markets. Wedbush is often one of the five biggest firms according to trading volume on the NASDAQ. According to the agency, Wedbush not only failed to have the required controls in place before trades happen, but also did not restrict access to preapproved and authorized people. The SEC also alleges that Wedbush did not conduct proper reviews of its risk management controls each year as it is required to do.
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The SEC states that the firm violated the market access rule because of the inactions of former vice president Wedbush Jeffrey Bell and senior vice president Christina Fillhart. Both executives worked in the firm’s market access business.
Regulators say Wedbush reaped “substantial profits while failing to protect U.S. markets from the risks posted by these traders.” They say the firm gave market access to traders oversees without approving them first or making sure that they were complying with laws in the U.S.
Details on the allegations against Wedbush
The SEC states that the market access violations started in July 2011 and lasted into 2013. Officials say the firm allowed most of its market access customers to send orders right to trading venues in the U.S. through trading platforms that it had no exclusive or direct control over.
The agency further states that both Bell and Fillhart had knowledge of the requirements regarding the market access rule and “should have known” that the firm did not have supervisory procedures and risk management controls that were in compliance with the rule. Officials say it was Fillhart’s responsibility to oversee the firm’s market access business and that she had received inquiries from exchanges regarding possible violations, both by the firm itself and its customers. In spite of these inquiries, however, officials say she didn’t take the proper steps to put proper controls in place.
Wedbush accused of violating other rules too
The SEC said Wedbush also violated a number of other regulatory rules as a result of its violation of the market access rule. Officials say the firm violated the rules about “regulation SHO relating to short sales,” “regulation NMS related to intermarket sweep orders,” “anti-money laundering requirements,” and “concerning the preservation of records.”
An administrative law judge will decide whether Wedbush Securities “willfully violated” the rules and whether Bell and Fillhart did cause the firm to violate the rules. The judge will also decide whether to levy any sanctions against the firm or the executives and what those sanctions might be, if any.