BGC Financial to Pay $200K to Settle with FINRA Over Deficient Supervisory System

New York-based brokerage firm BGC Financial, L.P. (BGC) has agreed to pay a $200,000 fine and accept a censure to settle with the U.S. Financial Industry Regulatory Authority (FINRA) for failing to establish and maintain a supervisory system reasonably designed to detect potential spoofing and layering in equity securities. BGC has been a member of FINRA since July 1987.

FINRA found that between December 2014 and June 2023, the supervisory system of BGC was inadequately designed to identify possible instances of spoofing and layering, both of which are prohibited by FINRA regulations and federal securities laws. Moreover, during the period from December 2014 to January 2021, BGC did not establish any supervisory system, including surveillance measures or supervisory reviews, to monitor and detect potential spoofing or layering activities conducted by its traders.

In February2021, BGC implemented an automated surveillance system to detect potential instances of spoofing and layering by its traders, and daily relevant documents and data were also recorded and reported. However, the surveillance had certain unreasonable parameters. For example, certain of BGC's surveillance parameters for spoofing and layering required the entry of a large order on both sides of the market, a significant number or high total share volume of layered orders on one side of the market, or a very high volume of cancelled orders. These parameters were unreasonable because layering and spoofing could also occur with smaller-sized or single orders, and BGC's trading included such smaller-sized or single orders.

Therefore, BGC violated FINRA Rules 3110 and 2010. FINRA Rule 3110(a) requires each member firm to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules. A violation of FINRA Rule 3110 is also a violation of FINRA Rule 2010, which requires a firm to "observe high standards of commercial honor and just and equitable principles of trade" in the conduct of its business.

As per a document released by FINRA, BGC has submitted a Letter of Acceptance, Waiver, and Consent (AWC), and agreed to reach a settlement with the regulator concerning its alleged rule violations.