Broker-Dealer Litigation - Greenberg Traurig LLP

firm settled charges that it violated Section 17(a) of the Exchange Act and Rule 17a-3(a)(6)
thereunder by failing to make records of price guarantees that were part of the terms and
conditions of institutional customer orders.
In addition, the SEC charged the firm with violating Section 15(b)(4)(E) of the Exchange
Act, in that the firm failed reasonably to supervise its traders with a view towards preventing
them from violating the federal securities laws. Specifically, the firm failed to establish policies
and procedures reasonably designed to prevent the proprietary traders from obtaining
institutional customer order information from the market making desk. The close proximity
between proprietary traders and market makers on the firm’s equity trading floor, allowed the
proprietary traders to see customer order information on the market makers’ computer screens
and hear market makers discuss customer orders. In addition, the SEC noted that the firm
encouraged the market makers to generate and share “trading ideas” with the proprietary traders
and compensated market makers for profitable ideas. The firm consented to the SEC’s finding
that, as a result of such conduct, it failed reasonably to supervise traders associated with the
proprietary trading desk and its NASDAQ market making operations, with a view toward
detecting and preventing violations of the Exchange Act.
As a result, the firm consented to cease and desist order from committing or causing any
violations and any future violations of Sections 15(c)(1)(A), 15(g) and 17(a) of the Exchange Act
and Rule 17a-3(a)(6) thereunder, a censure, and a civil money penalty of $10 million.
Matter of BNY Mellon Securities LLC, Admin. Proc. File No. 3-14191, SEC Release No. 34-
63724, 2011 SEC LEXIS 252 (Jan. 14, 2011).
The SEC alleged that respondent failed reasonably to supervise the order desk manager
on its institutional order desk and traders under his supervision. The institutional order desk
executed orders to purchase and sell securities on behalf of one of the firm’s affiliates, which
administered various employee stock plans. The SEC found that the order desk manager failed
to provide best execution for orders on behalf of such plan customers, by executing trades at
prices that were sale or outside of the National Best Bid and Offer (“NBBO”). More
specifically, the orders were executed as part of cross trades with “a favored handful” of
accounts held by hedge funds and individuals. The SEC noted that the order desk manager not
only executed such trades himself, but directed traders under his supervision to do so as well.
In connection with the supervisory charges, the SEC noted that while the firm had written
supervisory procedures regarding best execution of customer orders, the procedures were
unreasonable because they failed to describe how the best execution committee should follow-up
on red flags raised in best execution reports (which among other things, tracked the frequency of
executions outside the NBBO), and lacked procedures to determine whether the order desk
manager was completing effectively his daily review of executions on regional exchanges, as
prescribed by the written supervisory procedures. In fact, the manager was not conducting the
required review; if such failure had been discovered by the firm, the manger and his
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