NASDAQ PHLX LLCLETTER OF ACCEPTANCE, WAIVER AND CONSENT
NO. 2019.02.0025
TO:Nasdaq PHLX LLC
Phlx Enforcement Department

RE:

William McCormack, Respondent
Registered Options Principal
CRD No. 2690069

Pursuant to Rule 9216 of Nasdaq PHLX LLC (“Phlx” or the “Exchange”) Code of Procedure,
William McCormack (“McCormack” or “Respondent”) submits this Letter of Acceptance,
Waiver and Consent (“AWC”) for the purpose of proposing a settlement of the alleged ruleviolations described below. This AWC is submitted on the condition that, if accepted, Phlx
will not bring any future actions against the Respondent alleging violations based on the same
factual findings described herein.
I.
ACCEPTANCE AND CONSENT
A.

Respondent hereby accepts and consents, without admitting or denying the findings,
and solely for the purposes of this proceeding and any other proceeding brought by oron behalf of Phlx, or to which Phlx is a party, prior to a hearing and without anadjudication of any issue of law or fact, to the entry of the following findings by Phlx:
BACKGROUND AND RELEVANT DISCIPLINARY HISTORYMcCormack was employed in the securities industry from 1995 through 2019, having been
associated with a total of twelve firms over the course of his career. Most recently,
McCormack was registered at Entity A (“Entity A” or the “Firm”) from May 2011 throughOctober 2019. Effective October 9, 2019, McCormack terminated his association withEntity A and is not presently associated with any other firms, but he remains subject toPhlx’s jurisdiction pursuant to Phlx Rule 9110(d).1 While at Entity A, McCormack served
as a floor trader on the Phlx engaging in the execution of purchases and sales of options,with the predominance of his trading activity involving the dividend trade.2 On February

Following the Review Period, Phlx relocated Phlx Rule 9110(d) to General 5, Section 1(c). Exchange Act
Release No. 34-88519 (Mar. 20, 2020), 85 Fed. Reg. 19203 (Apr. 6, 2020).

1“Dividend trade strategies are transacted by market makers who are trying to capture corporate dividend
payments when individual customers leave deep-in-the-money call options unexercised on the day prior to a stock’sex-dividend date. To capture as much of the dividend as possible, two market makers enter into an agreement totrade deep-in-the-money call options back and forth with each other on the day prior to the ex-dividend date. Themarket makers then exercise all of their long options positions, resulting in a long stock position. In most cases, theircorresponding short options positions will be assigned and the market maker will immediately be required to deliver
most of their long stock. . . . For every options position that remains short, the market maker does not have todeliver stock and is able to keep the dividend payment for the stock that they are long.” International Securities
Exchange White Paper on Dividend Trade Strategies in the U.S. Options Industry (March 2010) (internal footnotesomitted).

2just and equitable principles of trade.5 A violation of Phlx Rule 748 also constitutes aviolation of Phlx Rule 707.
3. As the Registered Options Principal for Entity A, the Firm’s WSPs charged McCormack
with the responsibility for ensuring that the Firm’s WSPs with respect to options activity
were implemented, for reviewing and proposing appropriate action to secure the Firm’scompliance with the WSPs and the applicable regulations, and for regularly reporting tothe chief compliance officer regarding the implementation of the WSPs.
4. During the Review Period, Entity A effected thousands of transactions on the Phlx floor
on behalf of Entity B. However, Entity A and Entity B were apparently and legally under
the common control of A.P. throughout the Review Period, and A.P. had an interest in
Entity B.
5. Accordingly, Entity A was prohibited from effecting transactions on the Phlx floor forthe account of an associated person—A.P.—by the securities laws and Phlx rules
prohibiting proprietary trading on the Phlx floor.6
6. The Firm’s WSPs charge McCormack, as the Firm’s Registered Options Principal, withsupervising the opening of new client accounts, supervising options trading for customer
accounts, and supervising floor trading personnel. In particular, McCormack oversaw
the opening of the customer account for Entity B, and McCormack was responsible forsupervising the options trading conducted on the Phlx in this account and for supervising
the floor trading personnel executing transactions on behalf of this account.
7. The Firm’s WSPs also specifically designated McCormack as the supervisor conducting
day-to-day oversight of A.P.’s account activity. In this role, McCormack was required
to perform day-to-day supervision of A.P.’s customer account activity, including new
account approval, daily transactions reviews, suitability reviews, and trading activity
reviews. The Firm’s WSPs also required McCormack to “have the authority to oversee,
direct or correct the activities of [A.P.], and take all necessary remedial actions, including
termination, if and when necessary.”
8. Based on McCormack’s role as the Registered Options Principal for Entity A,
McCormack should have known of A.P.’s controlling interest in Entity B. While theevidence does not show that McCormack financially benefitted from the trades for Entity
B, because Entity B was the account of an associated person of Entity A, McCormack
should have known that Entity A was prohibited from effecting transactions on the Phlx
Following the Review Period, Phlx relocated Phlx Rule 707 to Options 9, Section 1. Exchange Act Release
No. 34-88213 (Feb. 14, 2020), 85 Fed. Reg. 9859 (Feb. 20, 2020).

5Specifically, Section 11(a) of the 1934 Act provides that “[i]t shall be unlawful for any member of anational securities exchange to effect any transaction on such exchange for its own account, the account of anassociated person, or an account with respect to which it or an associated person thereof exercises investment
discretion.” 15 U.S.C.S. § 78k(a)(1). Rule 11a-1 provides that “[n]o member of a national securities exchange,
while on the floor of such exchange, shall initiate, directly or indirectly, any transaction in any security admitted totrading on such exchange, for any account in which such member has an interest, or for any such account withrespect to which such member has discretion as to the time of execution, the choice of security to be bought or sold,the total amount of any security to be bought or sold, or whether any such transaction shall be one of purchase orsale.” 17 C.F.R. § 240.11a-1(a). Phlx Rules 772 (before April 16, 2019) and Options 8, Section 16 (on or afterApril 16, 2019), provides that “[n]o member, while on the Floor, shall, without the prior approval of the Exchange,
initiate the purchase or sale on the Exchange of any security for any account in which he, his member organization
or a participant therein, is directly or indirectly interested with any person other than such member organization orparticipant therein.”63

floor for that account.
9. Although A.P. apparently and legally exercised common control over both Entity A andEntity B, and A.P. had an interest in Entity B, McCormack did not take action to preventEntity A from trading options on the floor of the Phlx on behalf of Entity B.
10. In failing to properly recognize A.P.’s apparent and common control status between
Entity A and Entity B, McCormack failed to maintain and enforce the Firm’s WSPs andMcCormack failed to reasonably discharge his supervisory duties and obligations toprevent and detect, insofar as practicable, violations of the applicable securities laws andregulations, including the Phlx By-Laws and rules, as described in paragraphs 4 and 5.
11. The aforementioned conduct constitutes violations of Phlx Rules 748 and 707.
B.

Respondent consents to the imposition of the following sanction:
1. A censure, a permanent principal bar, and a fine of $20,000.
The fine shall be due and payable either immediately upon reassociation with a member
firm, or prior to any application or request for relief from any statutory disqualification
resulting from this or any other event or proceeding, whichever is earlier.
Respondent specifically and voluntarily waives any right to claim that he is unable to pay,
now or at any time hereafter, the monetary sanction imposed in this matter.
Respondent understands that if he is barred or suspended from associating with any Phlx
member in a principal capacity, he becomes subject to a statutory disqualification as thatterm is defined in Section 3(a)(39) of the Securities Exchange Act of 1934, as amended.
Accordingly, Respondent may not be associated with any Phlx member in a principal
capacity, during the period of the bar or suspension. See Phlx Rule 8310 and IM-8310-1.
Furthermore, because Respondent is subject to a statutory disqualification during the bar, if
Respondent remains associated with a member firm in a non-barred capacity, an application
to continue that association may be required.
The sanctions imposed herein shall be effective on a date set by Phlx Enforcement
Department staff. Pursuant to IM-8310-3(e), a bar or expulsion shall become effective upon
approval or acceptance of this AWC.

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II.
WAIVER OF PROCEDURAL RIGHTS
Respondent specifically and voluntarily waives the following rights granted under Phlx’s Codeof Procedure:A.

To have a Formal Complaint issued specifying the allegations against Respondent;

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 Phlx Exchange Review Council and then tothe 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 Phlx Exchange Review Council, or any member of thePhlx Exchange Review Council, in connection with such person’s or body’s participation indiscussions regarding the terms and conditions of this AWC, or other consideration of thisAWC, 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 ofRule 9144, in connection with such person’s or body’s participation in discussions regarding
the terms and conditions of this AWC, or other consideration of this AWC, including its
acceptance or rejection.

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III.
OTHER MATTERS
Respondent understands that:A.

Submission of this AWC is voluntary and will not resolve this matter unless anduntil it has been reviewed and accepted by the Phlx Enforcement Department
and the Phlx Exchange Review Council, the Review Subcommittee, or theOffice of Disciplinary Affairs (“ODA”), pursuant to Phlx Rule 9216;

B.

If this AWC is not accepted, its submission will not be used as evidence toprove any of the allegations against the Respondent; andC.

If accepted:

D.

1.

This AWC will become part of the Respondent’s permanent disciplinary
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 Respondent’s right to 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 he may not deny the charges or make any
statement that is inconsistent with the AWC in this Statement. This Statement
does not constitute factual or legal findings by Phlx, nor does it reflect theviews of Phlx or its staff.

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