According to FINRA, IMC-Chicago LLC (doing business as IMC Financial Markets) was censured and fined $1.2 million on October 9, 2024, for failing to timely and accurately report 28.7 billion equity and options order events to the Consolidated Audit Trail (CAT) Central Repository.
The firm's 21.8 billion inaccurate reports were caused by software coding and system issues, which persisted for periods spanning a few weeks to nearly two years. The firm's 6.9 billion late reports were caused by technology issues involving the firm's connectivity to various exchanges and other broker-dealers. After updating its reporting system, the firm remediated the issues that caused the CAT reporting violations and has submitted reports to correct over 99.9 percent of the late and inaccurate reports.
The firm also failed to establish and maintain a supervisory system reasonably designed to achieve compliance with CAT reporting rules. From June 2020 to September 2020, the firm had no supervisory system in place to review the accuracy of the data it reported to CAT, nor did it maintain written supervisory procedures concerning its CAT reporting obligation. The firm then began implementing a supervisory system, but the scope of its supervisory review was unreasonably narrow. The firm conducted a quarterly accuracy review of only three complete order cycles, later increased to one complete order cycle for equities and options for each of the over 10 market centers to which the firm sent orders.
The firm subsequently reduced the number of order events reviewed per quarter to two order cycles from each trading platform that generated order and trade data. The scope and frequency of the firm's supervisory review for CAT reporting compliance was not reasonable given the volume of data that it reported to the CAT Central Repository.
This case demonstrates the inadequacy of sampling-based supervision when dealing with billions of data points. Reviewing just a handful of order cycles per quarter when reporting billions of events is like inspecting a few grains of sand on a beach—it cannot possibly provide reasonable assurance of accuracy. Firms must implement automated systems and controls that can monitor reporting accuracy at scale. For investors, this case illustrates how even technical reporting requirements serve an important protective function. The CAT system helps regulators detect market manipulation and other misconduct that can harm retail investors. When firms fail to report accurately, it creates blind spots that bad actors can exploit.
