Virtu Pays $125,000 to Settle FINRA Probe of Orders Execution

The core allegations are centered around the broker’s methodology governing the execution and priority of pending orders.

The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms ‎doing business in the United States, today fined Virtu Americas LLC (formerly KCG Americas LLC) for a handful of violations and failures.

The core allegations are centered around the broker’s methodology governing the execution and priority of pending orders from May 2013 to September 2019. In particular, Virtu did not have a written execution methodology for OTC equity securities that were handled manually and executed outside of the firm’s automated Manning system.

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For instance, Wall Street’s industry-funded watchdog found that the firm executed 35 percent of its OTC orders manually outside of its Manning system, while it did not have a written document addressing priority requirements for such orders. Given the firm’s size in the OTC market, the failure to have a written methodology document for manually executed orders created a substantial risk.

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A disruption to market trading standards

In addition to violating these rules, FINRA found that certain order types for NMS securities, such as stop orders and certain orders in Nasdaq-listed securities, were also handled manually prior to market open. This act may provide an advantageous trading price to the market maker while inhibiting the fair price for its clients.

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

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