BGC Financial L.P Penalized by FINRA Over Alleged Spoofing
Overview of BGC Financial L.P
BGC Financial L.P. is a brokerage firm that claims to offer a wide range of investment products and services to clients worldwide. As part of BGC Group, a global financial services company headquartered in London and New York, BGC Financial is mostly known for its expertise in buying and selling securities such as stocks, bonds, mutual funds, and more.
BGC Financial L.P. joined FINRA in July 1987 and is based in New York. The company operates 13 branches with around 270 registered representatives.
| Aspect | Details |
|---|---|
| Company Name | BGC Group |
| Product Portfolio | – Fixed-Income Securities – Interest Rate Swaps – Foreign Exchange – Equities – Equity Derivatives – Credit Derivatives – Commodities – Futures – Structured Products – Over 200 financial products in total |
| Financial Services | – Provided by BGC Financial, L.P. – Claims to offer a comprehensive suite of trade execution and broker-dealer services |
| Regulatory Compliance | – Claims to adhere to regulatory requirements by providing annual disclosures, including: – CFTC Rule 155(k) (firm-specific disclosure statement) – CFTC Rule 155(b) (risk disclosure statement) |
Allegations
BGC failed to have a supervisory system reasonably designed to detect potential spoofing and layering.
From December 2014 to June 2023, BGC did not successfully implement and sustain a supervisory system that could effectively identify potential instances of spoofing and layering in equity securities, thereby breaching FINRA Rules 3110 and 2010.
Details of the Case
FINRA conducted surveillance of BGC Partners, L.P. (BGC) and discovered potential spoofing and layering activities. FINRA Rule 3110 requires member firms to establish and maintain a supervisory system to ensure compliance with securities laws, regulations, and FINRA rules.
BGC failed to have an adequate supervisory system to detect potential spoofing and layering, which are fraudulent practices that involve displaying non-bona fide orders to manipulate prices and induce trades.
From December 2014 to January 2021, BGC had no surveillance or supervisory system to monitor for potential spoofing or layering by its traders, despite executing approximately 5,000 equity transactions per day during that period.
In February 2021, BGC implemented automated surveillance to identify potential instances of spoofing and layering, but certain parameters were unreasonable, allowing for smaller-sized or single orders to evade detection.
Actions Taken by BGC in Response to Regulatory Violations
The failure of BGC Financial L.P. to maintain a reasonably designed supervisory system violated FINRA Rules 3110 and 2010. In July 2023, BGC implemented surveillance to address the issue. As a result, BGC consented to a censure, and a $200,000 fine, and waived any right to claim inability to pay the imposed sanction. On a date that FINRA sets, the sanctions will go into effect.
Conclusion
In conclusion, BGC Financial, L.P., a prominent brokerage firm within the BGC Group, faced regulatory scrutiny and enforcement action by FINRA for its failure to maintain an effective supervisory system to detect potential instances of spoofing and layering in equity securities. The case unfolded from December 2014 to June 2023, during which BGC allegedly lacked adequate surveillance mechanisms, exposing the firm to risks associated with fraudulent trading practices.
FINRA Rule 3110 mandates member firms to establish and maintain a supervisory system to ensure compliance with securities laws and regulations. BGC’s deficiencies in implementing such a system resulted in a censure and a $200,000 fine. Although the company took corrective action by introducing automated surveillance in February 2021, certain parameters were deemed unreasonable, enabling evasion of detection by smaller-sized or single orders.
The enforcement action emphasizes the necessity of strong supervisory mechanisms in financial institutions, as well as the need for proactive steps to detect and prevent potential market manipulation. BGC’s collaboration with FINRA and subsequent implementation of surveillance show a commitment to correcting identified flaws. The issued censure and punishment highlight the regulatory emphasis on maintaining financial market integrity and openness and serve as a warning to industry players to consistently improve their compliance processes.
