According to FINRA, Electronic Transaction Clearing, Inc. was sanctioned with a total fine of $3 million for failing to reasonably supervise for potentially manipulative trading and failing to establish adequate anti-money laundering policies and procedures.

The firm failed to reasonably surveil for certain forms of manipulation such as marking the open or close, prearranged trading, and wash sales. Most concerning, the firm failed to review more than one million alerts that exceeded its vendor-provided system's scoring threshold for potential manipulative trading. The firm had limited staff and resources to sufficiently review and resolve these alerts, and there were significant delays in reviewing surveillance alerts. Additionally, the firm permitted first-level reviewers to close surveillance alerts without any oversight or supervision by a firm principal.

From an AML perspective, the firm failed to reasonably surveil trading and did not respond to red flags of suspicious activity for purposes of determining whether to file Suspicious Activity Reports (SARs). The firm also failed to implement reasonable procedures for filing SARs when it detected suspicious transactions, resulting in the firm failing to file SARs in certain instances where suspicious activity had been identified.

FINRA also found that the firm's market access controls and supervisory procedures were not reasonably designed, including inadequate documentation of financial risk management controls and overly permissive price controls for sponsored access clients.

This case highlights the critical importance of adequate staffing and resources for compliance functions. Firms cannot simply install surveillance systems and ignore the alerts they generate. Investors should be aware that inadequate supervision creates an environment where manipulative trading and money laundering can flourish, potentially harming market integrity and individual investors.