The Bourse de Montréal Inc. (MX) has accepted a settlement with National Bank Financial Inc. (NBF), which admitted to supervisory failures in overseeing a former trader.
Following a hearing on Nov. 21, the exchange’s disciplinary committee approved a settlement with NBF, which agreed to a $250,000 penalty and to pay $26,750 in costs, for regulatory breaches.
The settlement followed a complaint brought by the MX’s regulatory division, alleging that between mid-2018 and the end of March 2020, the firm failed to properly enforce its own market surveillance policies involving an unnamed trader, which amounted to a breach of the exchange’s rules.
According to the committee’s decision, in October 2019, the MX’s regulatory division received alerts concerning trading activity by an NBF trader, and in 2020, it launched an investigation.
“The trading pattern identified by the division involved [the trader] entering orders on both sides of the market, including potential illegitimate orders that were immediately cancelled,” the decision said, noting that this sort of activity can be indicative of efforts to obtain more favourable executions by creating a false impression of the market.
The decision further stated that these alerts were identified by NBF’s surveillance system “and led to contemporaneous reviews of the underlying trading activities.”
“However, these alerts did not result in a sufficiently detailed and documented review and corresponding escalation of the matter to meet certain requirements of NBF’s supervision procedures,” it added.
As a result, the regulatory division alleged that the firm failed to enforce its own trading surveillance policies, breaching the exchange’s rules.
According to the decision, the firm cooperated with the MX’s investigation, its misconduct was not intentional, and it admitted to the breaches.
The trader is no longer employed by the firm, the decision noted, adding that NBF has since beefed up its trade supervision.