NYSE AMERICAN LLC LETTER OF ACCEPTANCE, WAIVER AND CONSENT NO.?:ofliO'i I

Transcription

1 NYSE AMERICAN LLC LETTER OF ACCEPTANCE, WAIVER AND CONSENT NO.?:ofliO'i I TO: RE: NYSE American LLC c/o Department of Enforcement Financial Industry Regulatory Authority ("FINRN') Wells Fargo Securities, LLC, Respondent Broker-Dealer CRD No Pursuant to Rule 9216 of the NYSE American LLC 1 C'NYSE Amedcan" or the "Exchange") Code of P1 ocedure, Wells Fa1-go Secul'ities, LLC ("WCHV'' 01 the "firm") submits this Letter of Acceptance, Waiver and Consent ("A WC") fo1 the purpose of proposing a settlement of the alleged rule violations described bejow. This A WC is submitted on the condition that, if accepted, NYSE American will not bring any future actions against the firm alleging violations based on the same factual findings described herein, I. ACCEPTANCE AND CONSENT A. The firm hereby accepts and consents. without admitting or denying the findings, and solely fo1 the pul'poscs of this proceeding and any other proceeding brought by or on behalf of NYSE American, or to which NYSE American is a party, prior to a hearing and without an adjudication of any issue of law or fact, to the entry of the following findings by NYSE American: BACKGROUND The firm became a member of NYSE American on February 27, 2014, and FINRA on May 29, The firm's registrations remain in effect. RELEVANT PRIOR DISCIPLINARY HISTORY The fil'm has no relevant disciplinary history. SUMMARY 1. FINRA 's Trading and Financial Compliance Examinations Section ("TFCE',) of the Department of Market Regulation (the "Statr), on behalf of NYSE American and various other securities exchanges, conducted a review (the "2016 Exam'') of the finn's compliance with Section 17(a) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and Rule l 7a-3 thereunder, in addition to NYSE 1 Effective July 24, 2017, NYSE MKT ILC was renamed to NYSE American LLC. Thus, while the conduct referred to herein occurred prior to July 24, 2017, and thus the violations we1 e of NYSE MKT rules, for purposes of this docwncnt all the violations cited herein wiu be refe1ted to as "NYSE Amel'lcan Rules." STAR No (JPH)

2 American Rule 956NY, which focused on manual options orders on trnde dates from February 22, 2016 through February 26, 2016 (the "Exam Review Period"). Staff also reviewed the fi nn's compliance with NYSE American Rule 320 and the firm's procedul'es related to the handling of manual options orders that it had in place from the beginning of 2014 through the present (the "Supervision Review Period"). 2. As a result of its review, Staff determined that the fi rm violated Exchange Act Rule l 7aM3{a) and NYSE American Rule 956NY by failing to maintain accurate books and records of manual options orders handled by the firm during the Exam Review Pel'iod. 3. Additionally, the firm violated NYSE American Rule 320 during the Supervision Review Period by failing to establish, maintain, enforce, and keep current a system, including written supervisory procedures ("WSPs"), of compliance and supervisory controls, reasonably designed to achieve compliance with applicable secul'ities laws and regulations and Exchange rujes pertaining to reco1 dkeeping requirements. Order Tickets and Recordkeeping Requirements 4. Tho policy underlying the re1:ordkeeping provisions is to ensure that regulators have access to certain basic infm'mation about securlties transactions to allow it to adequately police the securities markets. Access to bimsaction records such as order tickets therefore serve as an essential component of the surveillance and examination of broker-dealers by self-1 egulatory bodies. Applicable Rules S. Exchange Act Rule I 7a-3(a)(6) requires broker-dealers to create a brokerage order ticket of each brokerage 01 de1, and of any other instruction, given or received for the purchase or sale of securities, whether executed or unexecuted. In relevant part, this rule requires the brokerage order ticket to show the terms and conditions of the order or instrnctions and of any modification or cancellation thereof; the time the order was received; the time of entry; 2 and the time of execution or cancellation. 6. NYSE American 956NY requil'es metnbers to maintain a record of every order for the purchase or sale of option contracts, which must show the terms and conditions of the order and also must include, inter alia: CMTA and clearing information; option symbol, expil'ation month, exet"cise price, and type of option; side of market and order type; quantity; any limit price, stop price, or special conditions; opening or closing transaction; time in force; account origin code; solicited or unsolicited; order identification numhel'; order entry date and time, or the date and time of any modification of the terms of the order or cancellation of the order; order execution time and price; identity of the executing broker and the other party to the transaction; and such othe1 information as may be t-equired by the Ex.change. 2 The tenn "time of entry" means "the ti ine when the member, broker or dealer transmits the order or instruction for execution." 17 C.F.R a~3(a){Ci). 2

3 7. NYSE American Rule 320 requires members to establish and maintain a system of compliance and supe1"visory controls designed to supe1"vise its business size, structure, customer accounts, transactions and business activities. Exchange Rule 320 also requires, inter alia, members to establish, maintain, and enfm-ce WSPs reasonably designed to achieve compliance with applicable federal securities laws and regulations and Exchange Rules, as part of its compliance system end supervisory controls. FACTS AND VIOLATIVE CONDUCT 8. During the 2016 Exam~ Staff reviewed 40 of the firm's manual option order records for timestamp accuracy and determined that the firm did not maintain accurate. transmission times for 21 ordel's (approximately 53% of the sample of 40) sent to floor brokers during the Exam Review Period. Of these 21 orders, 4 were executed on NYSE American The conduct described in paragraph 8 constitutes a violation of Exchange Act Rule I 7a-3(a) and NYSE American Rule 956NY. 10. During the Supervision Review Period, although the firm's WSPs required that registered representatives recol'd transmission times into the finn's orde1 management system, the firm's WSPs failed to include supervisory reviews to ensure the accuracy of its manual options order tickets. Thus, the firm was unable to produce evidence that transmission times were the subject of supervisory reviews. 11. Additionally, the firm failed to establish, maintain, and enforce a system reasonably designed to supervise the operations of its business and ensul'e compliance with applicable federal securities laws and regulations and NYSE American Rules pe11aining to books and records. 12. The conduct described in paragraphs I 0 and 11 constitutes a violation of NYSE American Rule 320. B. The firm also consents to the imposition of the following sanctions: 1. A censure; 2. An aggregate fine of$54,000, of which $9,000 shall be paid to the Exchange; 4 3. An undertaking requiring the fmn to amend its WSPs to include supervisory review of its manual options orders fo1 01'de1 detail accuracy and to ensure that the 3 The firm handled approximately 3,152 manual options 01 ders in Based upon the 53 percent error rate noted in the Exam Review Period, Staff estimates that the firm lnaccuraiely recorded timestamps in about 1,670 of the manual options orders that the firm handled in The balance of the sanction will be paid to the self-regulatory organi7.ations llsted in B.4. 3

4 - firm has implemented procedures that are reasonably designed to achieve compliance with the mies and regulations cited herein. a) The firm shall submit to the COMPLIANCE ASSISTANT, DEPARTMENT OF ENFORCE'MENT, 9509 KEY WEST AVENUE, ROCKVILLE, MD 20850, no later than 30 days after the A WC becomes final, a signed dated lette1, or an from a work-related account of the registered principal to MarketRegulationComp@finra.org, providing the following information: (1) a reference to this matter; (2} a representation that the firm has revised its supervisory systems and procedures to addressed the deficiencies described above; and (3} the dates that this was completed; 4. Acceptance of this AWC is conditioned upon acceptance of similar settlement agreements in related matters between the firm and each of the following selfregulatory organizations: Cboe Exchange, Jnc.; NYSE Arca, Inc., and Nasdaq PHLX LLC. The aggregate settlement amount across all markets is $54,000. The firm agrees to pay the monetary sanction(s) upon notice that this A WC has been accepted and that such payment(s) are due and payable the fil m has submitted a Method of Payment Confirmation fotm showing the method by which it will pay the fine imposed. The firm specifically and voluntarily waives any right to claim that it is unable to pay, now or at any time hereaftet, the n:onetary sanction(s) imposed in this matter. The firm agrees that it shall not seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made pursuant to any insurance policy, with regard to any fine amounts that the firm pays pursuant to this A WC, regardless of the usc of the fine amounts. The firm further agrees that it shall not claim, assert, or apply for a tax deduction or tax credit with regard to any federal, state, or local tax for any fine amounts that Respondent pays pursuant to this A WC, regardless of the use of the fine amounts. The sanctions imposed he1-ein shau bo effective on a date set by NYSE Regulation staff. II. WAIVER OF PROCEDURAL RIGHTS The finn specificajly and voluntarily waives the following rights granted under the NYSE American's Code of Procedure: A. To have a Formal Complaint issued specifying the allegations against the firm; B. To be notified of the Fol'mal Complaint and have the opportunity to answea the a1legations in writing; 4

5 C. To defend against the allegations in a discipjinary hew ing before a hearing panel, to have a written record of the hearing made and to have a written decision issued; and D. To appeal any such decision to the Exchange's Boal'd of Directors and then to the U.S. Securities and Exchange Commission and a U.S. Court of Appeals. Further, the firm specifically and voluntarily waives any right to claim bias or prejudgment of the Chief Regulatory Officer of NYSE American; the Exchange's Board of Directors, Disciplinary Action Committee ( 0 DAC,.) and Committee for Review ("CFR"); any Director, DAC member or CFR member; Counsel to the Exchange Board of Directors or CFR; any other NYSE American employee; or any Regulatory Staff as defined in Rule 9120 in connection with such person's or body's pa1ticipation in discussions regarding the terms and conditions of this AWC, or other consideration of this A WC, including acceptance or rejection of this AWC. The firm further specifically and voluntarily waives any a ight to claim that a person violated the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144, in connection with such person's or body's participation in discussions regarding the terms and conditions ofthis A WC, or other consideration of this AWC, including its acceptance or rejection. The fom understands that: Ill. OTHER MATTERS A. Submission of this A WC is voluntary and will not resolve this matter unless and until it has been reviewed and accepted by the Chief Regulatory Officer of NYSE American, pu1'suant to NYSE American Rule 9216; B. If this A WC is not accepted, its submission will not be used as evidence to prove any of the al1egations against the firm; and C. If accepted: 1. The A WC shall be sent to each Director and each member of the Committee for Review via coul'ier, express delivel'y or electronic means, and shall be deemed final and shall constitute the complaint, answer, and decision in the matte1, 25 days after it is sent to each Director and each member of1he Committee for Review, unless review by the Exchange Board of Directors is requested pursuant to NYSE Ametican Rule 9310(a)(l)(B). 2. This A WC will become pa1t of the firm permanent disciplinary record and may be considet-ed in any future actions brought by NYSE American, or any other regulator against the finn; 5

6 3. NYSE American shall publish a copy of the AWC on its website in accordance with NYSE Amel'ican Rule 8313; 4. NYSE American may make a public announcement concerning this agreement and the subject matter thereof in accordance with NYSE American Rule 8313; nnd 5. The finn may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise. denying. directly or indil'ectly, any finding in this A WC or create the impression that the A WC is without factual basis. The firm may not take any position in any proceeding brought by 01 on behalf of NYSE American. 01 to which NYSE American is a party, that is inconsistent with any part of this AWC. Nothing in this provision affects the firm s (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in which NYSE American is not a party. D. A signed copy of this A WC and the accompanying Method of Payment Confirmation fonn delivered by , facsimile or other means of elec1ronic transmission shall be deemed to have the same legal effect as delivery of an orjginal signed copy. E. The firm may attach a Corrective Action Statement to this A WC that is a statement of demonstrable corrective steps taken to prevent future misconduct. The firm understands that it may not deny the charges or make any statement that is inconsistent with the A WC in this Statement. This Statement does not constitute factual or legal findings by NYSE American, nor does it reflect the views of NYSE Regulation or its staff. 6

7 The undersigned, on behalf of the tinn, certifies lhal a person duly authorized to act on its behalf has Rad and understands au of the provisions of this A WC and has been given a full opportunity to ask questions about it; that it has agreed to the A WC's provisions volunlarlly; and that no ofter, throat, inducement, or promiso of any lclnd, other than tho tcnns set forth herein and the: prospect ofavoiding the issuance of a Complaint, has been made to induce the finn to submit it. Date t-z/t/11 Reviewed by: ~~ - Counsel for Respondent Michael D. Wolk Sidley Austin ILP 1501 K Street, N.W. Washington, D.C. 2000:S Accepted by r1nra fl ~" ~I\ \! l \ 6'L 2/,,( Lara M. Pamer Chief Counset Department of Enforcament Signed on behalf of NYSE American LLC, by delegated authority from the Chief Regulatory Officer of NYSE American LLC. l 7