The Financial Industry Regulatory Authority (FINRA) has fined New York-based interdealer broker GFI Securities LLC $50,000 for a series of lapses in Risk Management
Risk Management
One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent.
One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent.
Read this Term control around its ATS division.
Wall Street's industry-funded watchdog found that GFI Securities failed to comply with SEC's market access rules that require broker-dealers to document a system of risk management controls and supervision processes to limit financial exposure.
As explained by FINRA, these controls should be built into business processes, supported by real-time alerts and monitoring system.
More specifically, GFI's customers routed equity orders to the firm's traders, who then routed some trades directly to the ARCA or NASDAQ market. Still, the broker used a third-party order management system (OMS) to manage equity trading. In addition, GFI lacked careful documentation to demonstrate risk management and supervisory procedures related to its alternative trading system, CreditMatch.
Finra added that from November 2014 to August 2017, GFI had in place a daily trading capital limit for its equity trading, but failed to document the basis or rationale for that determination. To mitigate these concerns related to market access, the company revised its written procedures, but those revisions included only general requirements and lacked specific risk controls tailored to its own systems.
GFI also fined for disclosing customer identities
During that period, the independent regulator also described other violations, including that GFI failed to prevent the entry of orders that exceeded appropriate pre-set credit thresholds for its non-broker-dealer customers in CreditMatch.
"Finally, the Firm failed to conduct an annual review in 2014 to assure the overall effectiveness of its risk management controls and supervisory procedures with respect to CreditMatch, and failed properly to complete the required certification for 2014 that such risk management controls and supervisory procedures complied with SEA Rule 15c3- 5(b) and (c)," the filing further states.
Overall, regardless of the motivation, Finra considered these violations a disruption to market trading standards, which regulators seek to uphold for all investing participants.
In recent years, US regulators began cracking down harder on alternative trading systems (ATSs), which commonly referred to as "dark pools." These venues have become faster and more automated in recent years, bringing additional risk since no public prices there and trades can be carried out in secret, which can favor high-speed traders.
GFI Securities has recently received several fines, including those related to its equity derivatives desk. The SEC hit the firm last year with a $4.3 million penalty for disclosing customer identities to trading counterparties despite touting that it preserves their anonymity when brokering trades.
The Financial Industry Regulatory Authority (FINRA) has fined New York-based interdealer broker GFI Securities LLC $50,000 for a series of lapses in Risk Management
Risk Management
One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent.
One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent.
Read this Term control around its ATS division.
Wall Street's industry-funded watchdog found that GFI Securities failed to comply with SEC's market access rules that require broker-dealers to document a system of risk management controls and supervision processes to limit financial exposure.
As explained by FINRA, these controls should be built into business processes, supported by real-time alerts and monitoring system.
More specifically, GFI's customers routed equity orders to the firm's traders, who then routed some trades directly to the ARCA or NASDAQ market. Still, the broker used a third-party order management system (OMS) to manage equity trading. In addition, GFI lacked careful documentation to demonstrate risk management and supervisory procedures related to its alternative trading system, CreditMatch.
Finra added that from November 2014 to August 2017, GFI had in place a daily trading capital limit for its equity trading, but failed to document the basis or rationale for that determination. To mitigate these concerns related to market access, the company revised its written procedures, but those revisions included only general requirements and lacked specific risk controls tailored to its own systems.
GFI also fined for disclosing customer identities
During that period, the independent regulator also described other violations, including that GFI failed to prevent the entry of orders that exceeded appropriate pre-set credit thresholds for its non-broker-dealer customers in CreditMatch.
"Finally, the Firm failed to conduct an annual review in 2014 to assure the overall effectiveness of its risk management controls and supervisory procedures with respect to CreditMatch, and failed properly to complete the required certification for 2014 that such risk management controls and supervisory procedures complied with SEA Rule 15c3- 5(b) and (c)," the filing further states.
Overall, regardless of the motivation, Finra considered these violations a disruption to market trading standards, which regulators seek to uphold for all investing participants.
In recent years, US regulators began cracking down harder on alternative trading systems (ATSs), which commonly referred to as "dark pools." These venues have become faster and more automated in recent years, bringing additional risk since no public prices there and trades can be carried out in secret, which can favor high-speed traders.
GFI Securities has recently received several fines, including those related to its equity derivatives desk. The SEC hit the firm last year with a $4.3 million penalty for disclosing customer identities to trading counterparties despite touting that it preserves their anonymity when brokering trades.
