BATS EXCHANGE, INC. LETTER OF ACCEPTANCE> WAIVER AND CONSENT NO

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1 BATS EXCHANGE, INC. LETTER OF ACCEPTANCE> WAIVER AND CONSENT NO TO: RE: BA TS Exchange, Inc. c/o Department of Market Regulation Financial Industry Regulatory Authority ("FINRA") Wedbush Securities lnc., Respondent Broker-Dealer CRDNo. 877 Pursuant to Rule 8.3 of the Rules of BATS Exchange, Inc. ("BATS"), Wedbush Securities Inc. (the "firm" or "WEDB") submits this Letter of Acceptance, Waiver and Consent ("AWC") for the purpose of proposing a settlement of the alleged rule violations described below. This A WC is submitted on the condition that, if accepted, BATS 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 for the purposes of this proceeding and any other proceeding brought by or on behalf of BA TS, or to which BATS 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 BATS: BACKGROUND WEDB was approved for BATS membership on August 18, The firm's BATS option membership became effective when the exchange began trading options on February 26, 20 I 0, and the firm's membership is still in effect. WEDB became a FINRA member on July 30, 1955, and the firm's membership is still in effect. During 2010 and 2011, WEDB was allocated to BA TS in accordance with the lntermarket Surveillance Group I 7d-2 Agreement. 1 1 The Securities and Exchange Commission and options self-regulatory organizations ("SROs") are parties to a I 7d- 2 Agreement, which allocated among the SROs regulatory responsibilities relating to compliance by the common members with rules for expiring exercise declarations, position limits, Options Clearing Corporation ("OCC") trade adjustments, and Large Options Positions Report ("LOPR") reviews. STAR No. 20 I (TC)

2 RELEVANT DISCIPLINARY HISTORY Respondent has no relevant formal disciplinary history. SUMMARY In connection with matter 20 I , on behalf of BATS, FINRA staff (the "staff') initially conducted a review of the firm's reporting to the Options Clearing Corporation ("OCC") Large Options Positions Report ("LOPR") during the period July I, 2010 through September 30, 2010 for compliance with Chapter XVIII, Section of the BZX Exchange Rules. FACTS AND VIOLATIVE CONDUCT Reporting of Options Positions l. LOPR data is used extensively by self-regulatory organizations as they conduct reviews that have the ultimate goal of identifying and detell'ing the establishment of options positions that may provide an incentive to manipulate the underlying market, as well as other violative conduct. Accordingly, the accuracy of LOPR data is essential for the analysis of potential violations related to insider trading, position limits, exercise limits, front-running, capping and pegging, minimanipulation, and marking-the-close. 2. When reporting to the LOPR during the relevant period, firms were required, among other things, to aggregate all accounts under common control 1 of the same individual(s) or entity to determine position reportability. Accordingly, when accounts that are acting in concert ("AlC") hold in the aggregate a reportable position, the firm must report each account's positions (whether individually reportable or not) for LOPR purposes. 3. During the period between January 19, 2010 and Febrnary 28, 2011, WEDB failed to rep01t numerous reportable options positions because the firm had failed to properly aggregate and report positions to the OCC LOPR for approximately 39 accounts related to five ATC groups that acted in concert. 4. The conduct described in paragraphs one through three above constitutes a violation of Chapter XVlll, Section of the BZX Exchange Rules. 2 "Control" is defined as the power or ability of an individual or entity to make investment decisions for an account or accounts, or influence directly or indirectly the investment decisions of any person or entity making investment decisions for an account. 2

3 Supervision 5. During the period between January 19, 2010 and February 28, 2011, WEDB failed to have an adequate supervisory system in place to ensure the accuracy and completeness of the repo11ing of its options positions, including in-concert reporting, to the LOPR. 6. The conduct described in paragraph five constitutes separate and distinct violations of Chapter XYffl, Rule 18.2(a)(I) of the BZX Exchange Rules. 7. During the period between January 19, 20 I 0 and the present, WEDB has failed to have adequate written supervisory procedures ("\ivsps") regarding in-concert repo1ting to the LOPR and to ensure the accuracy and completeness of its daily LOPR submissions. Specifica11y, WED B's \VSPs fail to reflect: (i) the step(s) that the firm's designated person responsible to ensure compliance with applicable rules should take to ensure compliance therewith; (ii) how often such person(s) should take such step(s); and (iii) how such steps are documented. 8. The conduct described in paragraph seven constitutes separate and distinct violations of Chapter V, Rules 5.1, 5.3, and 5.4 of the BZX Exchange Rules. OTHER CONSIDERATIONS In determining to resolve this matter on the basis set forth herein, BA TS considered: (i) that WEDB promptly took {lction to con-ect this activity prior to the completion of the Staffs investigation; and (ii) that WEDB promptly developed and implemented an enhanced reporting system governing the identification of AIC accounts prior to the completion of the Stafrs investigation. OTHER FACTORS B. The firm also consents to the imposition of the following sanctions: (i) (ii) (iii) a censure, a fine in the amount of $20,000, and an undertaking to revise its WSPs, with respect to the areas described in paragraph seven above. Within 30 business days of acceptance of this AWC by the Chief Regulatory Officer, a registered principal of the Respondent shall submit to the COMPLIANCE ASSISTANT, LEGAL SECTION, MARKET REGULATION DEPARTMENT, 9509 KEY WEST A VENUE, ROCKYJLLE, MD 20850, a signed, dated letter, or an from a work-related account of the registered principal to MarketRegulationComp@finra.org, providing the following information: (I) a reference to this matter; (2) a representation that the 3

4 firm has 1:evised its WSPs to address the above-described deficiencies; and (3) the date the revised procedures were implemented. 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. It has submitted an Election of Payment form showing the method by which it proposes to 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 hereafter, the monetary sanction(s) imposed in this matter. The sanctions imposed herein shall be effective on a date set by BA TS. 11. W AIYER OF PROCEDURAL RIGHTS The firm specifically and voluntarily waives the following rights granted under BATS Rules: A. To have a Statement of Charges issued specifying the allegations against the firm; B. To be notified of the Statement of Charges and have the opportunity to answer the allegations in writing; C. To defend against the allegations in a disciplinary hearing before a Hearing Panel, to have a \.Vritten record of the hearing made and to have a written decision issued; and D. To appeal any such decision to the Appeals Committee of the BATS's Board of Directors and then to the U.S. Securities and Exchange Commission and a U.S. Cou1t of Appeals. Further, the firm specifically and voluntarily waives any right to claim bias or prejudgment of the Chief Regulatory Officer ("CRO"), in connection with her participation in discussions regarding the terms and conditions of this A WC, or other consideration of this AWC, including acceptance or rejection or this A WC. The firm further specifically and voluntarily waives any right to claim that a person violated the ex pa rte prohibitions of BA TS Rule 8.16, in connection with such person's or body's pmticipation in discussions regarding the terms and conditions of this A WC, or other. consideration of this A WC, including its acceptance or rejection. 4

5 III. OTHER MATTERS The firm understands that: 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 CRO, pursuant to BA TS Rule 8.3; B. If this A WC is not accepted, its submission will not be used as evidence to prove any of the allegations against the finn; and C. If accepted: 1. This A WC will become part of the firm's permanent disciplinary record and may be considered in any future actions brought by BA TS or any other regulator against the firm; 2. This A WC will be published on a website maintained by BATS in accordance with BATS Rule 8.11, Jnte1pretations and Policies.OJ. In addition, this A WC will be made available through FINRA's public disclosure program in response to public inquiries about the firm's disciplinary record; and 3. The firm may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, 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 or on behalf of BA TS, or to which BA TS is a parly, that is inconsistent with any part of this A WC. 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 BATS is not a party. D. The firm may attach a Corrective Action Statement to this A WC that is a statement of demonstrable corrective steps taken lo 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 BA TS, nor does it reflect the views of BATS or its staff. 5

6 The undersigned, on behalf of the firm, certifies lhat a person duly authorized to act on its behalf has read and understands all 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 voluntarily; and that no offer, threat, inducement, or promise of any kind, other than the terms set forth herein and the prospect of avoiding the issuance of a Complaint, has been made to induce the firm to submit it. A\l\l?-' ~ Date Wedbush Securities Inc. Respondent ' :,/_/ By:~ ~ Name: ft ;c/ S f!c. 11 Title: S. V. f (:; ~ ( (O I Reviewed by: Counsel for Respondent Firm Name Address City/State/Zip Phone Number 'b/?--1! ~DIS Date r Tamara Schadema1 n Chief Regulatory 0 BA TS Exchange, Inc. 6

7 ELECTION OF PAYMENT FORM The firm intends to pay the fine proposed in the attached Letter of Acceptance, Waiver and Consent by the following method (check one): -a A firm check or bank check for the full amount; or D Wire transfer. Respectfully submitted, Av.-j-. )0 JO 1.f Date Respondent Wedbush Securities Inc. Title: S. V. /J. (.J, ( ( 0 STAR No (TC)