Also, some of those 50 market access customers in turn provided access to others. Some had "hundreds or thousands of traders," including one "that had thousands of essentially anonymous foreign traders trading through a single Wedbush customer account."
8 From the SEC's order:
Shortly before most provisions of the Market Access Rule took effect, Wedbush obtained email statements from many of the trading platform providers that the risk management settings in the platforms were under the direct and exclusive control of Wedbush. In reality, Wedbush did not have exclusive control of the risk management settings because Wedbush continued allowing sponsored access customers to determine and make changes to the risk settings in the platforms, and Wedbush had no contractual relationship with the platform providers. These statements also were not part of any legally enforceable contract; Wedbush had no contractual relationship with the platform providers. Wedbush’s WSPs stated that each new sponsored access customer would perform an initial “risk demonstration” to show Wedbush the customer’s trading platform settings for certain financial and regulatory risk controls. Wedbush had a checklist for the risk demonstration that included settings to prevent clearly erroneous trades, wash trades, illegal short sales, and, unless authorized by Wedbush, intermarket sweep orders (“ISOs”). That Wedbush needed the customer to show the settings to Wedbush demonstrates that Wedbush did not have “direct and exclusive control” over the risk settings in the platforms, as required by Rule 15c3-5(d).
The WSPs are Wedbush's written supervisory procedures for these accounts.
9 From the order:
For trades with a single trader ID on both sides, Fillhart relied on the customer firm to follow up with the trader. On many occasions, the customer simply responded that it was not wash trading or was an error. On some occasions, the customer did not respond at all. Fillhart generally did not ask the Wedbush employee to follow up with customers for further explanation and did not report the trading to the AML officer as suspicious. In February 2012, Fillhart learned from exchanges that numerous traders in the account of one of Wedbush’s largest sponsored access customers appeared to be engaged in wash or pre-arranged trading. Fillhart determined that the customer or its platform provider had disabled the risk setting in the platform that would have prevented the trading.
Christina Fillhart was a senior vice president at Wedbush responsible for its market access business. The SEC has brought a case against her, too, and her boss Jeffrey Bell.
10 See paragraphs 42-46 of the order if you want more detail on that; that's a little too market-structure-nerdy even for this footnote. (It's great market-structure nerdery if you like that sort of thing though.)
11 Technically he wasn't a Wedbush customer, he was a customer of their customers, but I guess the lack of supervision extended all the way down. See paragraph 18 of today's order, or this old order against Wedbush's customers, or this SEC complaint against the Latvian guy.
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