According to FINRA, Fenix Securities, LLC was censured and fined $100,000 for failing to establish and maintain adequate risk management controls for its market access business as required by SEC Rule 15c3-5 (the Market Access Rule).

The firm provided customers with direct market access to multiple alternative trading systems through its order management systems but failed to implement pre-trade controls that were reasonably designed to prevent erroneous orders. The firm's order size and price variance controls relied on static numbers that were set too high to effectively prevent erroneous orders and did not consider the individual trading characteristics of different securities or customers. The firm maintained no documentation explaining its rationale for setting these control levels.

One price variance control would trigger a warning message to a principal when exceeded, but the order would still route to the market without being stopped. The firm had no policies for how these warnings should be reviewed or documented, and maintained no documentation of such reviews. For some customers, the firm relied on pre-trade controls maintained by the alternative trading systems themselves, but these controls suffered from similar design flaws—using static numbers that were too high—and the firm failed to document which customers were subject to these controls or whether they were appropriate.

Furthermore, the firm failed to conduct required annual reviews of its market access business to assess the effectiveness of its risk management controls and supervisory procedures, and did not complete the required CEO certifications of compliance with the Market Access Rule.

The Market Access Rule requires broker-dealers that provide market access to have controls to manage financial and regulatory risks. Erroneous orders can cause significant market disruptions, as demonstrated by various flash crash" incidents in recent years. Pre-trade controls serve as critical safeguards to prevent orders with obviously incorrect prices or sizes from reaching the market. This case illustrates that simply having some controls is insufficient—they must be reasonably designed based on the firm's specific business and properly documented and reviewed. Investors benefit from these controls as they help maintain orderly markets and prevent the type of extreme volatility that can result from erroneous orders."