SEC fines trading firm for violating net capital rule for broker-dealers
The U.S. Securities and Exchange Commission has charged a New York-based high frequency trading firm with violating the net capital rule that requires all broker-dealers to maintain minimum levels of net liquid assets or net capital. The firm’s former chief operating officer is charged with causing the extensive violations.
An SEC investigation found that Latour Trading LLC operated without maintaining its required minimum net capital on 19 of 24 reporting dates during a two-year period, and the firm missed the mark by large amounts ranging from $2 million to $28 million.
To settle the SEC’s charges, Latour agreed to pay a $16 million penalty, the largest ever for violations of the net capital rule.
“This record sanction reflects the seriousness of Latour’s violations of the net capital rule, which is a critical broker-dealer financial responsibility requirement,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “We also will aggressively pursue executives who cause the violations.”
According to the SEC’s order instituting a settled administrative proceeding, a crucial step for a broker-dealer when calculating its net capital is to take percentage deductions referred to as “haircuts” from the firm’s proprietary securities and other positions. The SEC’s order finds that Latour repeatedly miscalculated its net capital amounts in 2010 and 2011 by failing to make proper haircut deductions from the market value of its proprietary securities positions and other positions.
According to the SEC’s order, Latour’s net capital violations also resulted in violations of the books and records and financial reporting provisions of the federal securities laws.
Source: SEC- SEC fines trading Firm for violating net capital rule for broker-dealers
