SpeedTrader Inc., a Katonah online trading firm that primarily serves day traders has consented to censure and a $165,000 fine for ineffective control of suspicious activities.
The Financial Industry Regulatory Authority issued the sanctions on July 31, citing violations of FINRA rules and U.S. Securities and Exchange Commission regulations.
SpeedTrader president and CEO Joseph L. Ely voluntarily ratified the consent order.
SpeedTrader’s goal is to provide the highest level of trading services at the lowest cost possible, according to its website. It does not advise or recommend strategies or securities.
“You, the retail investor, make all decisions regarding the purchase or sale of securities,” the firm declares.
But from late 2017 to early 2020, the consent agreement states, the firm failed to reasonably supervise potentially manipulative trading. During that period, about 570 customers – mostly day traders, including many in China and at least one foreign broker-dealer – exchanged billions of shares worth tens of billions of dollars.
The trades were automatically fed through a third-party surveillance system that flagged activities that met certain parameters, according to the consent order.
FINRA described a flawed system. For example, accounts used by more than one trader had only one identification number. Therefore, when the surveillance system flagged suspicious activity, SpeedTrader could not connect the trades to a specific person.
In June 2018, for instance, a foreign broker-dealer entered 11 orders within minutes to buy and sell the same security. The trades triggered 42 alerts for possible wash trading – illegally feeding misleading information to the market – but without knowing who was responsible for each order, SpeedTrader could not reasonably review the activity.
FINRA also said the surveillance system was not tailored to SpeedTrader’s business model; the firm did not periodically assess whether it was working as intended; it did not sufficiently investigate suspicious trading; written procedures for handling surveillance alerts were lacking; and it failed to establish and maintain reasonable risk management controls.
SpeedTrader agreed to remediate the problems within 90 days.
