Notice, Pursuant to Exchange By-law 18-2, of Disciplinary
Action Against Madison Proprietary Trading Group, LLC,
Member Organization
To:Members, Member Organizations, Participants and Participant Organizations

From:

John C. Pickford, Enforcement Counsel, NASDAQ OMX PHLXSM

DATE:December 29, 2010

NASDAQ OMX PHLX No. 10-23
Enforcement No. 2010-22
On December 21, 2010, the Business Conduct Committee (the “Committee”) issued adisciplinary decision against Madison Proprietary Trading Group, LLC (“Madison” or the“Firm”), a member organization of the Exchange. In response to a Statement of Charges
issued in this action, Madison submitted an Offer of Settlement, Stipulation of Facts andConsent to Sanctions (“Offer”). Solely to settle this proceeding, and without admitting ordenying the charges, Madison consented to findings that during the period January 1,
2009 and December 31, 2009 (the “Relevant Period”), it had violated Sections 15 and 17of the Securities Exchange Act of 1934, as amended (“Exchange Act”), Rules 15b3-1,
15c3-1(a), 17a-3, 17a-3(a)(19)(ii), 17a-4(b)(4), 17a-4(b)(5), 17a-5, and 17a-11(b)promulgated under the Exchange Act, and Exchange Rules 604, 703, 748(a), 748(e)(1),748(g), 757, 760, and 761, by, among other things: (i) conducting a securities businesswhile failing to maintain the minimum required amount of net capital on the following four
trading days: November 30, 2009, December 1, 2009, December 2, 2009, and December
14, 2009; (ii) failing to provide same-day notification to the Securities and Exchange
Commission and the Exchange of its net capital deficiency on the four trading days set
forth above; (iii) failing to keep accurate books and records; (iv) filing an inaccurate
Financial and Operational Combined Uniform Single Report with the Exchange; (v) failingto secure compensation agreements from four of its associated persons and failing tomaintain a written record, properly dated and/or executed, reflecting its relationship andcompensation arrangement with six other of its associated persons; (vi) failing topreserve, or to provide evidence that it had preserved: (a) certain electronic mails
received by or sent from a Yahoo electronic mail address that was held away from theFirm and utilized by its Chief Compliance Officer; and (b) forms, signature pages, andacknowledgements of numerous associated persons of the Firm regarding, among otherthings, their receipt of anti-money laundering (“AML”) compliance training, AML
disclosures, subscription agreements, outside business activities, and/or receipt of theFirm’s written supervisory procedures (“WSPs”); (vii) failing to preserve, or to provide
evidence that it had preserved, a record of its historical moment-to-moment net capitalcomputations; (viii) failing to amend its Uniform Application for Broker-Dealer Registration
filing to: (a) disclose the identity of an individual with a 5% to 10% interest inRespondent; and (b) accurately reflect that an affiliated entity had an ownership interest
in Madison of between 25% and 50%, rather than the inaccurately disclosed ownershipinterest of 75% or more; (ix) failing to amend the Uniform Application for Securities

Industry Registration or Transfer filings of two of its registered representatives to reflect
their outside business affiliations; (x) failing to exercise effective supervision and controlof the electronic communications generated by its branch office located in Ramsey, NewJersey. Specifically, Madison had failed to ensure that the electronic communications
generated in the branch office were properly segregated from the electroniccommunications generated by an affiliated firm; and (xi) failing to ensure that ten
employees and/or associated persons who were required to attend its annual compliance
meeting had in fact attended the meeting, or failing to provide evidence that such persons
had attended the meeting.
The Firm also consented, without admitting or denying the charges, to findings by theCommittee that Madison had failed to establish, maintain and enforce WSPs, and a system
for applying such procedures, that resulted in numerous supervisory deficiencies,including, but not limited to, the failure to address: (i) the responsibilities of its Financial
and Operations Principal; (ii) the existence and requirements of its Joint Back Officearrangement with its clearing firm; (iii) the criteria for registering individuals as NonRegistered Fingerprint persons; (iv) the minimum required net capital to which the Firm
was subject under Rule 15c3-1 promulgated under the Exchange Act; and (v) thearchiving and preservation of historical moment-to-moment net capital computations. TheFirm had also failed to: (i) document, or otherwise ensure, that all but three of its traders,
employees, or officers had attended its 2009 annual AML training program; and (ii)provide any evidence of the training materials utilized in its 2009 AML training programfrom which the Exchange could have determined whether any training had been actuallyconducted and the adequacy of any such training.
Finally, Madison consented, without admitting or denying the charges, to findings that ithad failed to: (i) ensure that three of its employees had completed and submitted, orcould not provide evidence that the employees had completed and submitted, Insider
Trading and Securities Fraud Enforcement Act Account Lists pertaining to them or theirhousehold members; (ii) detect that eight of its employees had failed to disclose
brokerage accounts held away from the Firm; (iii) detect discrepancies between thenumber of brokerage accounts disclosed by ten of its employees and the number ofbrokerage account statements it had received and/or reviewed for such employees; and(iv) maintain an accurate record, or conduct a monthly review, of the brokerage accountstatements of fourteen of its employees.
Madison’s Offer was accepted by the Committee and was the basis of its Decision. TheCommittee found that Madison had violated
Sections 15 and 17 of the Exchange Act,Rules 15b3-1, 15c3-1(a), 17a-3, 17a-3(a)(19)(ii), 17a-4(b)(4), 17a-4(b)(5), 17a-5, and17a-11(b) promulgated under the Exchange Act, and Exchange Rules 604, 703, 748(a),748(e)(1), 748(g), 757, 760, and 761, concurred in the sanctions consented to by it, andordered the imposition of the following sanctions: (i) a censure; (ii) a $42,500 fine; and(iii) an undertaking, within 60 days of the issuance of a Decision by the Committee, to:(a) revise its WSPs to address the deficiencies identified by the Exchange;and(b) submit to William Bunting, FINRA Market Regulation, 1900 MarketStreet, Second Floor, Philadelphia, PA 19103, a signed, dated letter,
providing the following information:(1) a reference to this matter;(2) a representation that Madison has revised its WSPs to address2the deficiencies identified by the Exchange;(3) the date the revised WSPs were implemented; and(4) a Corrective Action Statement detailing what specific actions
Madison has taken to prevent future violations of the net capital,
record preservation and ITSFEA-related rules.

For more information, contact:
John C. Pickford, Enforcement Counsel, NASDAQ OMX PHLX, at +1 215 496 5273

 Copyright 2009 The NASDAQ OMX Group, Inc. All Rights Reserved.

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