Overnight alternative trading system (ATS) Blue Ocean has been fined $550,000 by the Financial Industry Regulatory Authority (FINRA).
In Blue Ocean’s letter of Acceptance, Waiver, and Consent (AWC), specific breaches are cited, relating to inadequate AML compliance programs and supervisory systems to detect potential market manipulation.
The fine focuses on a lack of reasonable policies and procedures established by the firm since at least January 2023, which prevent the detection and reporting of suspicious activity during low-priced securities trading on Blue Ocean’s overnight session.
The firm’s alleged procedures failed to identify and conduct surveillance for several ‘red flags’ related to market manipulation, including spoofing, layering and further manipulative order entry patterns.
A condition has also been included in the AWC that, if approved, FINRA will not bring any future action against the respondents based on the same factual findings.
One example indicates that a significant number of buy-side orders for the same security were placed within half a second or less of the previous order by the same subscriber at least 270,000 times between November 2023 and December 2024, which was not picked up by the firm.
Within an examination of the breach, FINRA also highlights that Blue Ocean failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with federal securities laws and FINRA rules prohibiting market manipulation.
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Specifically, the actions mark a violation of FINRA Rules 3110(a), 3110(f)(ii) and 2010, and in response, Blue Ocean has submitted a letter of Acceptance, Waiver and Consent (AWC), with the aim of “proposing a settlement of the alleged rule violations”.
In addition, Blue Ocean also admits to a censure as a result of the violations, and has consented that within 180 days of the date of the acceptance of the AWC, a member of Blue Ocean’s senior management will certify that the firm has remediated the identified issues and implemented a supervisory system.
Blue Ocean began operating its ATS in June 2021 and currently runs an overnight session for matching orders in National Market System (NMS) stocks, between 8pm and 4am ET.