NEW YORK STOCK EXCHANGE LLC LETTER OF ACCEPTANCE, WAIVER, AND CONSENT ISO. 2016-07-01265 TO New York Stock Exchange LLC RE: Meridian Equity Partners, Inc.. Respondent CRD No. 133849 During the period from April 1, 2012 through September 30, 2015 (the "Relevant Period"), Meridian Equity Partners, Inc. violated NYSE Rules 132 (Comparison and Settlement of Transactions Through A Fully-Interfaced or Qualified Clearing Agency), 134(d)(v) (Differences and Omissions-Cleared Transactions), 123(b) (Record of Orders), 123(c) (Record of Orders), 134(d)(iii) (Differences and Omissions-Cleared Transactions), 134(j)(i) (Differences and Omissions-Cleared Transactions), and 440 (Rooks and Records), and Section17(a)(1) of the Exchange Act (Records and Reports), Exchange Act Rules 17a-3 (Record of Orders) and 17a-4 (Records to be Presers ed). Consent to a censure and a $17,500 fine. Pursuant to Rule 9216 of the New York Stock Exchange 1,1,C (the 'NYSE" or the "Exchange-) Code of Procedure, Meridian Equity Partners, Inc. (-1vIeridian'' or the -Firm") submits this Letter of Acceptance, Waiver, and Consent ("AWC") for the purpose ofproposing a settlement of the alleged rule violations described below. This AWC is submitted on the condition that, if' accepted, the NYSE will not bring any future actions against the Finn alleging iolations based on the same factual findings described herein. I. ACCEPTANCE AND CONSENT A. Meridian hereby accepts and consents. without admitting or denying the findings. and solely for the purposes of this proceeding and an other proceeding brought by or on behalf of the NYSE, or to which the NYSE 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 the NYSE: BACKGROUND AND JURISDICTION 1. Meridian became a member of the NYSE on May 6.2005, and its registration remains in effect. PROCEDIRAL HISTORY 2. This matter arises from three referrals to NYSE Regulation by the Market Regulation Department of the Financial Industry Regulatory Authority. Inc. ("FINRA"). 3. FINRA Department of Market Regulation (FINRA-MR) staff conducted a review of
the Firm for the period April 1. 2012 through March 3 l. 2014. FThRA-MR identified potential violations of NYSE Rules 123(b), I 34(d)(iii), n4(d)(v). 132, and 342, and referred the matter to NYSE Enforcement on January 1.2016, 4. FINRA-MR staff conducted a review of the Firm for the period Januar!, 1, 2014 through September 30. 2015 concerning the Firm's compliance with (among other rules) NYSE Rules 134(d)(v), 132, and 342. 1'INRA-MR staff referred the matter to NYSE Regulation on April 13. 2016. 5. The FUNTRA TFCF Examination ("F1NRA Exam-) staff conducted a review of the Firm for the period April 1, 2015 through June 30. concerning the Firm's compliance with (among other rules) NYSE Rules 134(d)( ). 132, and 342. FINRA Exam staff referred the matter to NYSE Rmulation on August 22, 2016. VIOLATIONS Incorrect Use of Floor Error Account Failure to Produce Complete Documentation of Customer Instructions 6. NYSE Rule 134(d)(v) states: "No trading may take place in an error account that is not related to an error." Further, NYSE. Rule 134(g) states that for the purpose. of the rule, an order is an "error" when an order is "executed outside of the customer instructions as entered in the electronic order tracking system of the Exchange pursuant to Rule 123(e)." 7. NYSE Information Memorandum 06-63 states in relevant part that. "No the extent documentation is not available either to support an error, or the facts and circumstances surrounding an erroneous report, the exemption afforded in Section I1(a)(1)(F) of the Exchange Act and Rule lla-1(h)(6) (Regulation of Floor Trading) under the Act. where the offsetting transaction is initiated on the Floor. may not be relied upon. Such transactions may not be processed through an error account.- ( Emphasis in original.) 8. In 24 instances during the Relevant Period, the Firm processed transactions through its error account for which it was unable to produce written evidence of its customers' instructions. Consequently, transactions processed through the error account due to a mistake in executing the customers' orders or failure to follow the customers' order instructions did not qualify as "errors" for purposes of NYSE Rule 134 and could not be processed through the Firm's error account. By doing so. the Firm violated NYSE Rule I34(d)(v). Failure to Document Customer Instructions in Writing 9, Section I 7(a)(1) of the Securities Exchange Act of 1934, Rule I7a-3(a)(6)(i) thereunder requires every broker, dealer, and member of a national securities exchange to make and keep a "metnorandum of each brokerage order. and of any other instruction, given or received for the purchase or sale of securities. whether executed or unexecuted. The memorandum shall show the terms and conditions of the
instructions and of any modification or cancellation thereof].]" 10. Section 17(a)(1) of the Securities Exchange Act of 1934, Rule I 7a-4(b)(1) thereunder requires that the Firm keep the documents described in Section 17(a)(1) of the Securities Exchange Act of 1934, Rule 17a-3(u)(6)(i) thereunder for "a period of not less than three years, the first two years in an easily accessible place." 11. NYSE Rule 123(b). Receipt of Orders, states: "Every member shall preserve for at least three years a record of every order received by that member on the Floor from off the Floor. Such record shall include the name and amount of the security, the terms of the order and the time when such order was received." 12. NYSE Rule 440. Books and Records. states: "Every member not associated with a member organization and every member organization shall make and preserve hooks and records as the Exchange may prescribe and as prescribed by Rule 17a-3." 13. NYSE Rule 123(c)(iii)(1 I), states in relevant part that. "[t]he details of each order required to be recorded... shall include... [a]ny special conditionsil" 14. NYSE Rule 134(d)(iii) provides that "records as to all errors shall be maintained by the member...such records shall include the audit trail data elements prescribed in NYSE Rule 132, as well as the nature and the amount or the error, the means whereby the member resolved the error with the member or member organization that cleared the error trade on the member's behalf. the aggregate amount of liability that the member has incurred and has outstanding, as of the time of each such error trade entry is recorded, and such other information as the NYSE may from time to time require... 15. In 24 instances during `.he Relevant Period, the Finn failed to make and maintain records and/or receipt of orders. provide complete order details of orders in violation of NYSE Rules 123(b), 134(d)(iii), 123(e) and 440. and Rules 17a-3 and 17a-4. Incorrect Use of Error Account for Mistakes in the Execution of Not Held Orders 16. NYSE Rule 134(d)(v) states: "No trading may take place in an error account that is not related to an error." A bona fide error includes the failure to execute a not held order due of an error as to symbol. side or price in the execution of said order. See NYSE Rule I 1:1(g)(ii). 17. NYSE Rule 134(g)(i) states that an "error" includes the situation in NN hich "an order is executed outside of the customer instructions as entered in the electronic order tracking system... When a held or not held order is executed in: (a) the wrong security; or (b) on the wrong side of the market; or {c) at a price outside the limit price of the order; or (d) is over bought or o% er sold; or (e) duplicates an execution. 18. NYSE Rule 134(11)00 states that an "error" occurs "when a not held order remains unexecuted. in whole or in part. due to the order being lost or misplaced. or as a result of a system malfunction. A system malfunction is the failure of physical equipment. 3
devices and/or programming employed by the Floor broker or otherwise provided the Exchange and used in the execution of orders." 19. "A 'not-held' order is a market or limit order that gives the floor broker or Floor trader both time and price discretion to attempt to get the best possible price." In re John N. Monaco. NYSE I Tearing Board Decision 08-37 at n.2 (Jun. 26. 2008). 20. An Order Inv -liming Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedied Sanctions and a Ceetve-and-Deist Order of the Securities Exchange Commission similarly defined not held orders as follows: --Not held orders arc orders for which the customer gives the broker time and price discretion. The customer vests the broker with the discretion as to when and at what price to buy or sell the stock. In contrast, held market orders are orders that a broker must execute without hesitation at the prevailing market price because it does not have time and price discretion." In re Morgan.S'iaidey & C'o, Inc., Order Instituting Administrative and Cease-and-Desist Proceedings. Making Findings. and Imposing Remedial Sanctions and a Cease-and-Desist Order. SEC Release No. 55726, Administrative Proceeding File No, 3-12631 at n. 3 (May 9. 2007), 21. En 16 instances, the Firm identified not held orders as held orders. and incorrectly processed those orders through the Floor error account. For example, orders with an instruction to "spread to the bell" and orders with an instruction for execution in the "best way" were all incorrectly treated as held orders. 22. Although there were mistakes in the execution of these orders (that potentially could have been addressed with the customer through "difference checks" or commission adjustments). they were not "errors" as that term is used for purposes oinysl Rule 134. As such, the Firm incorrectl processed these transactions through the Firm's error account in violation of NYSE Rule 134(d)(v), Incorrect "System Failure" Classification in Use of Error Account 23. NYSE Rule 134(j)(i) states: "For the types of errors referred to in (NYSE Rule 134101'0i)... such record and supporting documents must he provided to the Lxchange Division of Market Surveillance prior to the opening of the Floor on the next trade date following the error." 24. In two instances during the Review Period. Meridian processed transactions in its Floor error account that the Firm claimed were the result of system or technical error or system malfunction. However, the Firm failed to properly document and present a record of such error or malfunction as required by NYSE Rule 134(j)(ii) for the processing of those transactions through its Floor error account.
Inaccurate Use of Account Tyne Indicator 25. NYSE Rule 132(a) states: "Each party to a contract shall submit data regarding its side of the contract ("trade data") to a Fully-Interfaced Clearing Agency for comparison or settlement. but each party shall be free to select the Fully-Interfaced Clearing Agency of its choice for such purpose. Where the parties to a contract do not choose Fully-Interfaced Clearing Agencies for the comparison of such contract, they shall both submit trade data to the same Qualified Clearing Agency for comparison pursuant to the rules of such Clearing Aacncy and where such parties do not choose Fully-Interfaced Clearing Agencies for the settlement of such contract, they shall both submit the same transaction to the same Qualified Clearing Agency for settlement pursuant to the rules of such Clearing Agency[.}" 26. As stated in NYSE lnlbmiation Memo 02-59. the ''()" account type indicator was used during the Relevant Period ''to indicate a proprietary trade by a member on the loor relating to the member's own error." 27. In 33 instances, the Firm submitted inaccurate account type indicators lir its error account transactions in submittina the trades for comparison and settlement. in violation of NYSE Rule 132. OTIIER FACTORS 28. The Firm has no previous disciplinary history. 29. During the relevant period, the Firm retained and relied upon an outside vendor to assist in the compliance functions described above. including compliance with NYSE Rule 132. Following the cents described above, the Firm retained a new V endor to assist in the compliance functions described above. including with NYSE Rule 132. and has continued to use that vendor's services through the present time. SANCTIONS 13. The Firm consents to the imposition of the following sanctions: 1. Censure and fine in the amount of S17,500 The Firm agrees to pay the monetary sanction(s) upon notice that this AWC has been accepted and that such payment(s) are due and payable. The Firm has submitted a Method of Payment Confirmation form 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 hereafter. the monetary 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 3
AWC, regardless of the use 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 the Firm pays pursuant to this AWC, regardless of the use of the line amounts. II. WAIVER OF PROCEDURAL RIGHTS The Firm specifically and voluntarily waives the following rights granted under the NYSE Code of Procedure: A. To have a Formal Complaint issued specifying the allegations against the Firm; B. To he notified of the Formal Complaint 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 written record or the hearing made and to have a written decision issued; and D. To appeal any such decision to the Exchange's Board of Directors and then to the I I.S. Securities and Exchange Commission and a LS. Court of Appeals. Further, the Firm specifically and voluntarily waives any right to claim bias or prejudgment of the Chief Regulatory Meer of the NYSE: the Exchange's Board of Directors, Disciplinary Action Committee ("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 employee: or any Regulatory Staff as defined in Rule 9120 in connection with such person's or body's participation in discussions regarding the terms and conditions of this AWC, or other consideration of this AA-C, including acceptance or rejection of this.awc. The Firm further specifically and voluntarily waives any right to claim that a person violated the ex parte communication 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 of this AWC, or other consideration of this AWC. including its acceptance or rejection. III. OTHER MATTERS The Firm understands that: A. Submission of this AWC is voluntary and vtiill not resolve this matter unless and until it has been reviewed by NYSE Regulation. and accepted by the Chief' Regulatory Officer of the NYSE pursuant to NYSE Rule 9216; B. this AWC is not accepted, its submission will not be used as evidence to prove any of the allegations against the Firm; and C, If accepted: 6
1. The AWC shall be sent to each Director and each member of the Committee for Review via courier, express delivery or electronic means. and shall be deemed final and shall constitute the complaint, answer, and decision in the mutter. 25 days after it is sent to each Director and each member or the Committee for Review. unless review by the Exchange Board of Directors is requested pursuant to NYSE Rule 9310(0(1 )(B I This AWC will become part of the Firm's permanent disciplinary record and may be considered in any future actions brought by the Exchange. or any other regulator against the Firm; 3. The NYSE shall publish a copy of the AWC on its website in accordance with NYSE Rule 8313; 4. The NYSE may make a public announcement concerning this apeement and the subject matter thereof in accordance with NYSE Rule 8313; and 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 indirectly, any finding in this.awc or create the impression that the AWC is without factual basis. The Firm may not take any position in any proceeding brought by or on behalf of the Exchange, or to which the Exchange 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 the Exchange is not a party. D. A signed copy of this AWC and the accompanying Method of Payment Confirmation form delivered by email, facsimile or other means ofelectronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy. E. The Firm may attach a Corrective Action Statement to this AWC 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 AWC in :his Statement. An such statement does not constitute factual or legal findings by the Exchange. nor does it reflect the views of NYSE Regulation or its stall: The Firm certifies that, in connection with each of the Exchange's requests for documents in connection with this matter, the Firm made a diligent inquiry of all persons who reasonably had possession of responsive documents, and that those documents have been produced or identified in a privilege log. The Firm acknowledges that, in agreeing to the AWL, the Exchange has relied upon. among other things. the completeness of such document production. The undersigned, on behalf of the firm, certifies that a person duly authorized to act cm its behalf has read and understands all of the provisions of this AWC and has been given a full opportunity to ask questions about it: that it has agreed to the AWC's provisions voluntarily; and that no 7
offer, threat, inducement, or promise of any kind, other than the terms set forth herein and the prospect of awidinu the issuance of a Complaint. has been made io induce the firm to submit it. Date 7., I - I Meridian Fquity Partners. Inc.. Respondent By: e- e)(0 CAL k \ Name: y fide: C, LL.,C) Accepted by NYSE Regulation tt12.2.411* Date aniellc Kantor Lnforcement Counsel NYSE Regulation Signed on behaliof New York Stock Fxchance LLC, by delegated authority from its Chief Rceulatory Officer g