by Howard Haykin

How does the expression go? OH YES! GIVE HIM AN INCH AND HE’LL TAKE A MILE.

WHAT WENT WRONG?    Wedbush Securities (and Edward W. Wedbush) violated various NYSE Arca rules (and some rules under the Securities Exchange Act of 1934), as follows:

• failed in certain instances to designate specific accounts for which orders were being entered and instead allocating trades to accounts after the fact based on its president’s discretion and without reasonable oversight;

• failed in certain instances to record account names or designations until the end of the trading day, failing to identify each discretionary order as such, and failing to retain required documentation;

• failed to mark tens of thousands of proprietary orders with the appropriate designator;

• changed the closing prices of certain equity securities on the firm’s internal records without processes or reviews to ensure that the adjustments were not applied in a discriminatory fashion, at the instruction of its president;

• failed to apply and enforce Exchange margin requirements in connection with accounts managed and traded by its president;

• failed to establish and maintain adequate supervisory systems and procedures designed for the firm’s business as it related to accounts managed by its president, including: (i) improper order handling and post-execution allocations; (ii) not making and preserving order and account books and records; (iii) entering inaccurate capacity codes; (iv) improper manual overrides of closing prices without documented processes or reviews; and, (v) failing to comply with maintenance margin requirements;

• failed to establish, implement, and enforce adequate supervisory systems and procedures, including WSPs reasonably designed to supervise the firm’s president and accounts managed by him to achieve compliance with the federal securities laws and Exchange rules; and,

• failed to establish, document, and maintain a system of risk management controls and supervisory systems reasonably designed to ensure compliance with regulatory requirements regarding detection and prevention of potentially manipulative activity, including but not limited to wash sales, marking the open, and marking the close.

NYSE ARCA SANCTIONS TO WEDBUSH SECURITIES.    Wedbush Securities will pay a $1,000,000 fine, $900,000 of which is payable jointly and severally with Mr. Wedbush. In addition, Wedbush Securities will undertake the following:

• Hire an outside auditing firm to assist its internal audit department in conducting internal audits.
• Retain independent consultant(s) to conduct a comprehensive review of the firm’s controls and procedures pertaining to …
  • order handling and order and account books and records, including with respect to allocation of trades;
  • trading in the accounts controlled by Edward Wedbush, and similar accounts currently or previously managed by senior firm personnel;
  • supervision of trading by firm employees and executives;
  • margin requirements; and,
  • controls to detect and prevent potentially manipulative trading activity.
• Implement changes and enhancements, and then work together with independent consultant(s), who shall be retained for 2 years from the completion of the initial reviews.
• Hire an additional permanent, full-time, senior employee with relevant regulatory experience to work in the above five areas.

NYSE ARCA SANCTIONS TO EDWARD W. WEDBUSH.    Mr. Wedbush will be jointly and severally responsible for $900,000 of the firm's $1,000,000 fine. In addition, he will withdraw his registrations with NYSE Arca and affiliated exchanges, and will no longer serve as president or as director of Wedbush Securities. He will be succeeded in those roles by Richard Jablonski and Gary Wedbush.