Credit Suisse to Pay $6.5 Mln for Direct Market-Access Violations
(Updated December 24 with comment from a Credit Suisse spokeswoman.)
Regulators on Monday fined Credit Suisse Securities $6.5 million and censured it for failing to control and have procedures for monitoring over $300 million of trading orders it allowed broker-dealers and other institutional clients to enter directly to it on U.S. securities exchanges over four years.
From February 2011 to July 2014, Finra, the Chicago Board Options Exchange, the Nasdaq Stock Market and the New York Stock Exchange received over 50,000 alerts suggesting possible “spoofing, layering, wash sales and prearranged trading” by Credit Suisse clients, the order said. Credit Suisse did not begin to implement a supervisory system to review the activities until the fall of 2013, “years after it began expanding its DMA business.”
The Swiss-owned U.S. broker-dealer failed to improve its supervision even after it was “put on notice of gaps in its surveillance system” through red flags raised by a client and an internal audit in 2012 and 2013, the order said.
Credit Suisse’s trading for DMA customers proliferated from 700 million shares in late 2010, when the Securities and Exchange Commission adopted its market-access rules, to 104 billion shares in 2014, Finra said. Two registered broker-dealers and one foreign non-registered entity accounted for about 20% of Credit Suisse’s direct-access order flow at the height of the trading activity in June 2014, and triggered a majority of the 50,000 alerts for potentially manipulative trades, it said.
“We are pleased to have resolved these matters with Finra and these exchanges,” said a spokeswoman for Credit Suisse, which accepted the consent order without admitting or denying the findings.
Credit Suisse’s failure to reasonably manage financial and regulatory risks in its post-trade direct access business violated various provisions of Rule 15c3-5, the SEC’s market-access rule, according to the consent letter. The rule requires broker-dealers to set credit limits and to annually review the effectiveness of their market access controls and supervisory procedures, among other provisions.
“As gatekeepers to the U.S. markets, it is critical that firms implement a robust supervisory system and actively surveil for manipulative activity in order to protect the integrity of the markets,” Finra and the exchange groups said in a prepared statement.
As part of the consent letter, Credit Suisse agreed to improve its surveillance and procedures within six months of issuance of the order.