According to FINRA, The Benchmark Company, LLC was censured and fined $65,000 for failing to establish and maintain adequate supervisory procedures to prevent prohibited trade-throughs of protected quotations in National Market System securities.

The firm's order management system (OMS) contained a coding error that caused it to send intermarket sweep orders (ISOs) directly to an exchange of which the firm was not a member. ISOs are special order types that allow a firm to execute at a price that may be inferior to the best available price, provided the firm simultaneously routes orders to execute against all better-priced protected quotations at other markets. However, when The Benchmark Company's ISOs were sent to the non-member exchange, that exchange rejected them.

The rejection of these ISOs meant that the firm did not simultaneously route ISOs to execute against the full size of all protected bids or offers as required by Regulation NMS. This caused the firm to route and execute orders at prices inferior to the exchange's protected quote—a violation known as a "trade-through." Trade-throughs undermine market quality by allowing executions at inferior prices when better prices are available at other venues.

After FINRA notified the firm of the trade-throughs, The Benchmark Company fixed the coding error. However, the firm subsequently implemented a system update to its OMS that reintroduced the same coding error. The firm again began routing ISOs directly to the exchange, which rejected them, causing additional route-throughs and trade-throughs. The firm continued sending violative ISOs until FINRA notified it again and the firm corrected the coding error a second time.

In total, the firm sent 1,427 ISOs directly to the exchange that were rejected. These rejected ISOs caused additional simultaneously routed ISOs to route through or trade through protected quotes in approximately 1,770 instances.

Beyond the technical failure, the firm's written policies and procedures were inadequate. Although the procedures required reviewing an exception report to identify whether routed ISOs were filled, canceled, or rejected, the firm did not actually review this report. Even after FINRA alerted the firm to the violations, the firm took no steps to ensure the coding errors would not recur or that the exception report was being reviewed.

The firm later fixed the coding errors and implemented procedures to review and supervise the exception report review process.