SEC to Bring B-D Market Structure Cases: Ceresney

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By Stephen Joyce

Nov. 2 — The Securities and Exchange Commission will subject registered broker-dealers to heightened scrutiny to ensure that they comply with existing market structure rules, SEC Enforcement Division Director Andrew Ceresney said.

Speaking Nov. 2 at a Securities Industry and Financial Markets Association conference in New York, Ceresney said broker-dealers must also prevent their customers, including non U.S. customers, from using brokers as a conduit for wrongdoing by inappropriately permitting access to U.S. financial markets.

“This sort of conduct exposes our markets to wrongdoers, and firms that provide that sort of direct market access must be vigilant to pre-approve traders appropriately,” Ceresney said.

Market Manipulation

More broadly the SEC Enforcement Division's focus on market structure compliance in fiscal 2016, which began Oct. 1, will focus on high-volume manipulation trading, trading venue fairness, misuse of confidential customer information and policy-and-procedure deficiencies regarding market access requirements, Ceresney said.

In a June 2014 speech, SEC Chairman Mary Jo White unveiled a list of perceived market-structure deficiencies her agency may seek to address through the rulemaking process. Stephen Luparello, director of the agency's Division of Trading and Markets, said in February that the SEC is contemplating a registration requirement for certain market participants that would likely include high-frequency traders and a new disclosure regime on alternative trading systems.

Focus on Dark Pools

In his speech, Ceresney also said an SEC enforcement focus in fiscal 2016 will be on alternative trading systems, including dark pools. “Dark pools currently do not have the same disclosure obligations as exchanges. Therefore, it is particularly important that when dark pool operators speak to subscribers about their operations, they speak truthfully and completely,” Ceresney said.

“We have and will look at what broker-dealers tell their customers about the way their dark pools operate, whether these statements are incomplete or misleading, and whether the firms are in fact running their dark pools the way they say they would,” Ceresney said.

He also said the SEC will enhance its monitoring of high-frequency traders in part to ensure the firms comply with Regulation National Market System, which in part prohibits dark pools from accepting and ranking sub-penny orders.

Deputy Director Stephanie Avakian said at the same conference that in 2016 her agency will also be increasing its scrutiny over cybersecurity cases while trying to allay concerns regarding enforcement actions chief compliance officers.

CCO Liability

Practitioners have questioned whether and when the SEC should bring enforcement actions against compliance professionals who may brush up against misconduct at the organizations they are paid to police.

The issue was highlighted by an April 20 SEC enforcement case charging the former chief compliance officer of Blackrock Advisors LLC with failing to report a material compliance matter.

“To answer the question folks are posing, there has not been a sea change in our approach to whether to charge compliance officers,” Avakian said. Compliance officers who perform their responsibilities diligently, in good faith and in compliance with the law need not fear enforcement actions, she said.

“The cases we've brought were cases in which the compliance officers were affirmatively involved in the misconduct, helped mislead regulators or had a clear responsibility to implement programs and policies and wholly failed to carry out their responsibilities. These are not cases of second guessing, good faith judgment—not slip-on-the-banana-peel cases,” Avakian said. “They concern actions or inactions that cross a clear line.”

New York Regional Office director Andrew Calamari said Sept. 29 that while there have been fewer than 10 SEC enforcement cases against chief compliance officers during the past decade or so, his agency is aware of the concerns such cases can provoke within the financial services community (190 SLD, 10/1/15)(See previous story, 10/01/15)(47 SRLR 1881, 10/5/15). “We are now, more than ever before, very keenly tuned into the issue,” Calamari said.

To contact the reporter on this story: Stephen Joyce in New York at

To contact the editor responsible for this story: Phyllis Diamond at


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