NASDAQ PHLX LLCLETTER OF ACCEPTANCE, WAIVER AND CONSENT
NO. 2018060117905
TO:Nasdaq Phlx LLC
c/o Department of Enforcement

RE:

Dash Financial Technologies LLC, Respondent
Broker-Dealer
CRD No. 104031

Phlx
ure,1 Dash Financial
submits this Letter of Acceptance, Waiver andionsdescribed below. This AWC is submitted on the condition that, if accepted, Phlx will not bringany future actions against the Respondent alleging violations based on the same factual findings
described herein.
Pursuant to Rule 9216 of Nasdaq PhlxI.
ACCEPTANCE AND CONSENT
A.

Respondent hereby accepts and consents, without admitting or denying the findings, andsolely for the purposes of this proceeding and any other proceeding brought by or on
behalf of Phlx, or to which Phlx is a party, prior to a hearing and without an adjudicationof any issue of law or fact, to the entry of the following findings by Phlx:
BACKGROUND
1. The Firm became a member of Phlx on February 11, 2003, and its registration remainin effect. Dash is an agency-only broker-dealer that provides routing and execution
services to institutional customers for options and equities. The Firm offers various
algorithmic trading products to its customers and does not domicile accounts orengage in proprietary trading. Dash has approximately 55 registered representatives
and three branches, and its principal place of business is Chicago, IL. The Firm has
no relevant disciplinary history.
SUMMARY
2. This matter arises from referrals Nasdaq and another exchange
of certain call options on October 10, 2018, and a separate referral for similar activity

1Series 9000 of The Nasdaq Stock Market LLC Rules are incorporated by reference into Phlx Rule General 5,Section 3, and are thus Phlx Rules and thereby applicable to Phlx members, member organizations, persons
associated with member organizations, and others jurisdiction.
STAR No. 2018060117905 (AH)MarketAccess Rule controls and procedures to determine if they were reasonably designed tolimit the financial exposure that arises as a result of market access by, among otherthings, preventing erroneous orders by rejecting orders that exceed price parameters.
3. This review found that from October 2018 through September 2020, Dash violated
Rule 15c3failing to establish, document, and maintain erroneous order controls and supervisory
procedures applicable to market orders for options. Further, from October 2018
through March 2022, Dash violated the Market Access Rule by failing to assure thatappropriate surveillance personnel receive immediate post-trade execution reports.
From October 2018 through March 2022, Dash also violated Phlx Rules 707 and 7482
supervisory system reasonably designed to ensure compliance with the MarketAccess Rule in connection with the same.
FACTS AND VIOLATIVE CONDUCTThe Market Access Rule
4. Rule 15c3-5(b) requires a brokerand maintain a system of risk management controls and supervisory procedures
reasonably designed to manage the financial, regulatory, and other risks of thisbusiness activity
5. Rule 15c3-5(c)(1) is intended to address these financial risks. To that end, Rule 15c35(c)(1)(ii) requires broker-dealers providing market access to maintain controls andorders, by rejecting orders that exceed appropriate price or size parameters on anorder-by-order basis or over a short period of time, or that indicate duplicativecaused by both manual errors and technological malfunctions.
6. Rule 15c3-5(c)(2)(iv) requires risk management controls and supervisory procedures
immediate post-trade execution reports that
requirement is designed to assure that broker-dealers with market access haveinformation immediately available to effectively control associated financial andregulatory risks.
The October 10, 2018 Erroneous Order Event
7. On October 10, 2018, a broker-dealer client routed ten market orders to buy a total of
20,700 ABC October 12 call option contracts in a series of ten strike prices (from2As of February 3, 2020, Phlx Rule 707 was renumbered to Phlx General 9, Section 1(c), and Phlx Rule 748 wasrenumbered to Phlx General 9, Section 20.

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$52.50 to $57) in quantities of 700 to 4,200 option contracts to Dash and selected a
specific routing algorithm that was designed for users who were not price sensitive
and who were looking to execute an options strip or basket quickly.
8. The selected algorithm then converted the market orders into multiple child limit
orders that reflected the size and price of the best offer disseminated by the targetexchange at the time each child order was created. The algorithm continued to send
limit orders until the order was fully executed, or all exchange quotes were pulled.
9. In less than one second, 9,664 of the 20,700 option contracts executed. Of those,
4,694 contracts executed on Phlx and several other options exchanges. As the orders
executed, and as the sell-side liquidity in the contracts decreased, the algorithm
continued to submit buy orders with escalating limit prices. Thus, although theNational Best Offer in the relevant call series ranged from $0.05 to $0.08 when thealgorithm, and the manner in which the algorithm priced the child limit orders, caused
execution prices to range from $0.05 to $10.00.
10. Dash first learned of this activity when it was contacted by its broker-dealer client. At
Phlx and other options exchanges to request thatthe executions be reviewed and adjusted. Phlx and the other options exchanges
treated the trades as Catastrophic Errors and adjusted the prices of 1,737 out of the4,694 contracts traded. The remaining trades stood without adjustment, including all
trades executed at $0.05 to $0.07.
The February 21, 2020 Erroneous Order Event
11. On February 21, 2020, a different broker-dealer client routed an order to sell 4,000
XYZ March 25 calls to Dash and selected the same algorithm referenced above,
which was designed to quickly execute options orders at prevailing market prices.
While Dash had implemented a control following the October 10, 2018 Erroneous
Order Event that was designed to limit the cumulative price impact that a parent
market order could have over a short period of time,3 the parameters wereinsufficiently tailored for low-priced options. As a result, the algorithm submittedorders to Phlx and other options exchanges, without sufficient regard to the impact
the orders may have on the price of the XYZ calls, with limit prices ranging from
$0.40 down to $0.10 and resulting in the execution of 3,358 of the 4,000 contracts on
Phlx and other options exchanges in less than one second at prices ranging from
$0.40 down to $0.10.
12. Dash first learned of this activity when it was contacted by its broker-dealer client. At
that the executions be reviewed and adjusted. Following their review, the exchanges
3offset based NBBO at the time a market order is received to the limit price setting functionality used by t
SOR when routing child orders.

3declined to do so as the execution prices did not qualify as Obvious or CatastrophicErrors.
Violations of Rules 15c3-5(b) and 15c3-5(c)(1)(ii)
13. At the time of the October 10, 2018 erroneous order event, Dash had in place various
pre-trade erroneous order controls that would reject limit orders that exceeded priceparameters. Dash did not, however, apply these or any other pre-trade price control tocreated and routed limit orders at continuously increasing prices to fill the client
market orders, which led to the October 10, 2018 Erroneous Order Event and resulted
in a Catastrophic Error review and related trade adjustments.
14. In or around November 2018, Dash implemethat applies a synthetic limit (i.e., an offset) to market orders based on the NBB/NBO
at the time the order is received. This synthetic limit is then used as an absolute limit
n use when externally routing orders forexecution. Although this control was in place at the time of the February 21, 2020
erroneous order event, its parameters were set such that it applied an offset of $0.50
to all orders priced up to $2.00 and was therefore not sufficiently tailored for orders in
low-priced options. Thus, this control did not prevent the orders at issue on February
21, 2020 from being routed because the price of those options was under $0.50.
not reasonably consider the price of the security. Dash subsequently updated thiscontrol as of September 2020 to use nine pricing tiers, with offsets ranging from$0.15 to $4.00. Dash did not, however, include a description of its Inbound Market
Order Control in its WSPs.
15. For the reasons set forth above, Dash violated Rules 15c3-5(b) and 15c3-5(c)(1)(ii).
Violations of Rules 15c3-5(b) and 15c3-5(c)(2)(iv)
16. From October 2018 through March 2022, Dash failed to assure that appropriate
surveillance personnel received immediate post-trade execution reports that resulted
from its market access. Dash lacked, and its WSPs did not reference, a post-trade
execution report that would detect substantial price movements resulting from orders
routed by its customers. As a result, Dash did not learn of either the October 10, 2018or the February 21, 2020 erroneous order events until it was contacted by therespective clients.
17. For the reasons set forth above, Dash violated Rules 15c3-5(b) and 15c3-5(c)(2)(iv).

4Supervisory Violations
18. Phlx Rule 707, and subsequently General 9, Section 1(c), provides that a Phlx
member shall not engage in conduct inconsistent with just and equitable principles oftrade.
19. Phlx Rule 748, and subsequently General 9, Section 20, requires members toestablish, maintain, and enforce WSPs, and a system for applying such WSPs, tosupervise the types of businesses in which members engage in and to supervise theactivities of all registered representatives, employees, and associated persons. TheWSPs and the system for applying such procedures must be reasonably designed toprevent and detect, insofar as practicable, violations of the applicable securities laws
and regulations, including the Phlx By-Laws and rules. Phlx Rule 748, andsubsequently General 9, Section 20, also require that persons with supervisory control
reasonably discharge their duties and obligations in connection with such supervisionand control to prevent and detect, insofar as practicable, violations of the applicablesecurities laws and regulations, including the Phlx By-Laws and rules.
20. From October 2018 through March 2022, Dash failed to establish and maintain asupervisory system, and failed to establish, maintain, and enforce WSPs reasonably
designed to achieve compliance with applicable securities laws, regulations andexchange rules relating to its Rule 15c3-5 erroneous order controls for options marketorders.
other control designed to prevent the erroneously priced orders discussed above.
post-trade surveillance report that woulddetect substantial price movements resulting from orders routed by its customers.
21. For the reasons set forth above, from October 2018 through February 2, 2020, Dashviolated Phlx Rules 707 and 748, and from February 3, 2020 through March 2022,
Dash violated General 9, Section 1(c) and General 9, Section 20.
OTHER FACTORS
B.

Respondent also consents to the imposition of the following sanctions:
1. Censure; and2. A total fine in the amount of $125,000 ($10,890 payable to Phlx).4
Respondent agrees to pay the monetary sanction(s) in accordance with its executedpayment form.
Respondent specifically and voluntarily waives any right to claim that it is unable to pay,4

The remainder of the fine shall be allocated to NYSE American, LLC, NYSE Arca, Inc., Nasdaq Options Market,LLC, Nasdaq MRX, LLC, Nasdaq ISE, LLC, Nasdaq GEMX, LLC, Nasdaq BX, Inc., Miami International
Securities Exchange, LLC, MIAX Pearl, LLC, and BOX Exchange, LLC for similar violations.

5now or at any time hereafter, the monetary sanction(s) imposed in this matter.
The sanctions imposed herein shall be effective on a date set by FINRA staff.
II.
WAIVER OF PROCEDURAL RIGHTS
Respondent specifically and voluntarily waives the following rights granted under Phlx Codeof Procedure:A.

To have a Formal Complaint issued specifying the allegations against the firm;B.

To be notified of the Formal Complaint and have the opportunity to answer theallegations in writing;C.

To defend against the allegations in a disciplinary hearing before a hearing panel,to have a written record of the hearing made and to have a written decision issued;
andD.

To appeal any such decision to the Exchange Review Council and then to the U.S.
Securities and Exchange Commission and a U.S. Court of Appeals.

Further, Respondent specifically and voluntarily waives any right to claim bias or prejudgmentof the Chief Regulatory Officer, the Exchange Review Council, or any member of the Exchange
regarding the terms and conditions of this AWC, or other consideration of this AWC, including
acceptance or rejection of this AWC.
Respondent further specifically and voluntarily waives any right to claim that a person violated
the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144,
articipation in discussions regarding the terms andconditions of this AWC, or other consideration of this AWC, including its acceptance orrejection.
III.
OTHER MATTERS
Respondent understands that:A.

Submission of this AWC is voluntary and will not resolve this matter unless andEnforcement
and the Exchange Review Council, the Review Subcommittee, or the Office ofPhlx Rule 9216;

B.

If this AWC is not accepted, its submission will not be used as evidence to prove
any of the allegations against the Respondent; and6

C.

D.

If accepted:
1.

This AWC will become part of the Respondentary
record and may be considered in any future actions brought by Phlx or any
other regulator against the Respondent;

2.

Phlx may release this AWC or make a public announcement concerning
this agreement and the subject matter thereof in accordance with Phlx
Rule 8310 and IM-8310-3; and3.

Respondent may not take any action or make or permit to be made any
public statement, including in regulatory filings or otherwise, denying,directly or indirectly, any finding in this AWC or create the impressionthat the AWC is without factual basis. Respondent may not take any
position in any proceeding brought by or on behalf of Phlx, or to which
Phlx is a party, that is inconsistent with any part of this AWC. Nothing inthis provision affects the Respondento take legal or factual
positions in litigation or other legal proceedings in which Phlx is not aparty.

Respondent may attach a Corrective Action Statement to this AWC that is astatement of demonstrable corrective steps taken to prevent future misconduct.
Respondent understands that it may not deny the charges or make any statementthat is inconsistent with the AWC in this Statement. This Statement does notconstitute factual or legal findings by Phlx, nor does it reflect the views of Phlx or
its staff.

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The undersigned, on behalf of the firm, certifies that a person duly authorized to act on its behalf
has read and understands all of the provisions of this AWC and has been given a full opportunity
to ask questions about it; that the firm
no offer, threat, inducement, or promise of any kind, other than the terms set forth herein and theprospect of avoiding the issuance of a Complaint, has been made to induce the firm to submit it.

_____________
Date_________________________________
Dash Financial Technologies LLC
Respondent____________
Date

By: ______________________________
Print Name: _______________________
Title: _____________________________

Reviewed by:_______________________
Derek Lacarrubba, Special Counsel
Schulte Roth & Zabel LLPCounsel for Respondent

Accepted by Phlx:_________________
Date____________________________________
Andy Hubbartt
Senior Counsel
Department of Enforcement
Signed on behalf of Phlx, by delegatedauthority from the Director of ODA

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