NYSE ARCA Participant Settles Disciplinary Action for US $450,000 for Purported Breakdown of Risk Management Controls Related to Market Access; CME Group Exchanges Sanction Multiple Traders Too

Maxim Group LLC agreed to pay a fine of US $450,000 to NYSE ARCA, Inc. to settle disciplinary charges that from December 1, 2016, through December 19, 2018, it allegedly failed to comply fully with Regulation Market Access by the Securities and Exchange Commission. (Click here to access an overview of Reg MAR published by the Financial Industry Regulatory Authority.) According to NYSE ARCA, during this time Maxim Group – an SEC-registered broker-dealer and a NYSE Equities Trading Permit Holder – failed to enforce a system of risk management controls required by Reg MAR related to credit limits; erroneous orders; post-trade reviews; and annual reviews, and did not have adequate supervisory procedures reasonably designed to ensure compliance with the relevant regulation. According to NYSE ARCA, during the relevant time, Maxim Group did not apply credit limits to any of its institutional customers. Although none of these customers were granted direct or sponsored access by Maxim Group, Reg MAR requirements apply to any market access. NYSE ARCA also claimed that the firm did not conduct spoofing or layering reviews as part of post-trade surveillance during the relevant time.

Separately, Merrill Lynch Commodities Inc. agreed to pay a fine of US $75,000 to settle a disciplinary proceeding by the New York Mercantile Exchange. A NYMEX business conduct committee charged that during one trade date, September 24, 2018, the firm maintained positions in excess of its hedge exemption in October 2018 Henry Hub Natural Gas futures. In accepting the firm’s settlement, the NYMEX BCC noted that Merrill Lynch had two other position limit violations during the prior two years. Arches Asset Management LLC also resolved allegations of position limit violations on the Chicago Board of Trade by settling two disciplinary actions for fines totaling US $55,000 and disgorgement of $966.

Finally, Hongfeng Wang (Hongfeng) settled disciplinary actions by the Commodity Exchange, Inc. and NYMEX claiming that from May 10 to 12, 2017, traders he employed executed trades between accounts he owned, without waiting at least five seconds between the placement of an order on one side of the market, and an order on the other side. The exchanges charged Hongfeng with impermissible wash trades and engaging in prearranged and noncompetitive trades. To resolve this matter, Hongfeng agreed to pay a total fine to both exchanges of US $30,000 and serve a six-month all CME Group-exchange access prohibition.