FINRA Hits Virtu Americas with $250,000 Regulatory Fine

Wall Street’s watchdog found that the firm failed to avoid displaying, locking or crossing quotations in OTC Equity Securities.

Virtu Americas LLC (formerly KCG Americas LLC) has agreed to pay $250,000 to settle a handful of violations and failures related to order execution, which were brought by the US Financial Industry Regulatory Authority (FINRA).

Wall Street’s industry-funded watchdog found that the firm failed to avoid displaying, locking or crossing quotations in OTC Equity Securities. The main point the FINRA made is that market rules can only function if there are uniform ways of accessing quotes as some parties can take advantage of orders information.

Allegations are centered around executions and priorities on pending orders from 2009 to 2017. During that period, the independent regulator described several violations, including that Virtu failed to immediately execute, route or display 156 customer limit orders in OTC equity securities. The firm also failed to timely report nearly 500 transactions to achieve compliance with its reporting obligations

The US regulations prohibit locking or crossing quotations across exchanges since these practices can cause confusion regarding the actual trading interest in a stock. The confusion can then result in execution delays, trading venue halts, and increased difficulty for investors seeking best execution.

Overall, regardless of the motivation, Finra considered these violations a disruption to market trading standards, which regulators seek to uphold for all investing participants.

Virtu Americas has recently received several fines including those related to its alternative trading system, which commonly referred to as a “dark pool.”

Making it worse, Virtu was described by the Finra as “one of the largest OTC market makers in terms of dollar, trade, and share volume” as it was the wholesale market maker for 10,000 OTC securities with a trading desk of 25 staff.

Virtu makes markets over 25,000 financial instruments, at over 235 venues, in 36 countries worldwide, continuously quoting buy and sell prices for others to trade against, profiting off the bid-offer spread, using high-frequency trading (HFT) strategies.

In 2017, Virtu Financial acquired rival KCG Holdings Inc. for $1.4 billion in cash, as tough market conditions forced high-frequency traders to consolidate and rethink business strategies. The combined entity created a giant HFT firm responsible for around 20 percent of the volume in US equities.

(Photo: Wikimedia Commons)

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