NASDAQ PHLX LLCNOTICE OF ACCEPTANCE OF AWC

Certified, Return Receipt Requested
TO:

Lime Brokerage LLC
Mr. Farid Naib
Chief Executive Officer
1001 Avenue of the Americas
16th Floor
New York, NY 10018

FROM:

Nasdaq PHLX LLC ("PHLX")
do Financial Industry Regulatory Authority ("FINRA")
Department of Enforcement
15200 Omega Drive, Suite 300
Rockville, MD 20850

DATE:

August 15, 2019

RE:

Notice of Acceptance of Letter of Acceptance, Waiver and Consent No. 2013037572604

Please be advised that your above-referenced Letter of Acceptance, Waiver and Consent ("AWC") has
been accepted on August 15, 2019 by the PHLX Review Council's Review Subcommittee, or by the
Office of Disciplinary Affairs on behalf of the PHLX Review Council, pursuant to PHLX Rule 9216. A
copy of the AWC is enclosed herewith.
You are again reminded of your obligation, if currently registered, immediately to update your Uniform
Application for Broker-Dealer Registration ("Form BD") to reflect the conclusion of this disciplinary
action. Additionally, you must also notify FINRA (or PHLX if you are not a member of FINRA) inwriting of any change of address or other changes required to be made to your Form BD.
You are reminded that Section I of the attached Letter of Acceptance, Waiver, and Consent includes anundertaking. In accordance with the terms of the AWC, a registered principal of the firm is required to
notify the Compliance Assistant, Department of Enforcement, 15200 Omega Drive, Suite 300,
Rockville, MD 20850, of completion of the undertaking.
You will be notified by the Registration and Disclosure Department regarding sanctions if a suspension
has been imposed and by Nasdaq's Finance Department regarding the payment of any fine if a fine has
been imposed.

Lime Brokerage LLC
Page 2

If you have any questions concerning this matter, please contact me at (646) 430-7050.

6(QC/(,(/)
Ely§e D. Kovar
Senior Counsel
Department of Enforcement, FINRA
Signed on behalf of PHLX

Enclosure
FINRA District 10 — New York
William St. Louis
Senior Vice President and Regional Director(Via email)James L. Kopecky
Counsel for the Respondent
Kopecky and Schumacher Rosenburg PC
120 North LaSalle Street, Suite 2000
Chicago, IL 60602

NASDAQ PHLX LLCLETTER OF ACCEPTANCE, WAIVER AND CONSENT
NO. 2013037572604
TO:

Nasdaq PHLX LLC
c/o Department of Enforcement
Financial Industry Regulatory Authority ("FINRA")RE:

Lime Brokerage LLC, Respondent
Member Firm
CRD No. 104369

Pursuant to Rule 9216 of the Nasdaq PHLX LLC ("PHLX" or the "Exchange") Code ofProcedure, Lime Brokerage LLC ("Lime," the "Firm" or "Respondent") submits this Letter ofAcceptance, Waiver and Consent ("AWC") for the purpose of proposing a settlement of thealleged rule violations described below. This AWC is submitted on the condition that, if
accepted, PHLX will not bring any future actions against the Firm alleging violations based on
the same factual findings described herein.
I.
ACCEPTANCE AND CONSENTA.

The Firm 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 the PHLX, or to which the PHLX is a party, prior to a hearing and without an
adjudication of any issue of law or fact, to the entry of the following findings by the
PHLX:
BACKGROUND
Lime is a broker-dealer based in New York, New York. The Firm currently has 41
registered persons and four branch offices. At all relevant times, Lime was an agencyonly brokerage firm that provided its customers with technology and direct market accessto a variety of different stock and options exchanges. Lime has been a PHLX member
since May 3, 2010, and its registration remains in effect. The Firm does not have any
relevant disciplinary history.
SUMMARYIn Matter No. 20150463435, FINRA's Department of Market Regulation, Quality ofMarkets team, on behalf of PHLX and seven other self-regulatory organizations,'
identified and reviewed potentially manipulative trading activity by multiple customers ofLime from December 1, 2014 through August 3, 2016 (the "Review Period"). During the

1I The seven other self-regulatory organizations are Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., Cboe

EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., the Nasdaq Stock Market LLC, Nasdaq BX, Inc., and FINRA.

Matter No. 20130375726 (includes merged Matter No. 20150463435)

Review Period, Lime offered foreign and domestic trading firms and other institutional
clients ("direct market access customers") the ability to trade directly on multiple
securities exchanges under Lime's exchange memberships. During the Review Period,
trading activity by certain of Lime"s direct market access customers triggered thousandsof alerts at Lime that raised red flags for potentially manipulative trading. But Lime
failed to establish and maintain a supervisory system and written supervisory procedures("WSPs") reasonably designed to assist in detecting and preventing violations of andachieving compliance with applicable securities laws and regulations, including the ByLaws and Rules of the Exchange, in connection with its direct market access customers'
trading activity through the Firm. Lime's supervisory system and WSPs did not provide
guidance as to how the Firm should review alerts of potentially manipulative trading andhow the Firm should supervise the disposition of any such alerts. Lime tasked a single
analyst with conducting a manual review of its surveillance alerts but failed to reasonably
supervise the analyst's review and disposition of those alerts. As a result, during the
Review Period, Lime failed to supervise to achieve compliance with applicable securities
laws and regulations prohibiting layering, spoofing and other manipulation, and engaged
in conduct inconsistent with just and equitable principles of trade. In addition, Lime
failed to establish, maintain, and enforce WSPs reasonably designed to prevent and detectviolations of securities laws and regulations, including the By-Laws and Rules of the
Exchange. The foregoing supervisory failures by Lime violated PHLX Rules 748 and707.
FACTS AND VIOLATIVE CONDUCT
Relevant Rules
1. PHLX Rule 748(b) requires member organizations to provide for appropriate supervisory
control of the organization and compliance with securities laws and regulations, including
the Exchange's By-Laws and Rules. Member organizations are required to provide forappropriate written procedures of supervision and control, and to establish a separate
system of follow-up and review to determine that the delegated authority andresponsibility is being properly exercised. PHLX Rule 748(d) requires each person withsupervisory control to reasonably discharge his duties and obligations in connection withthe organization's supervision and control to prevent and detect, insofar as practicable,
violations of the applicable securities laws and regulations, including the Exchange's ByLaws and Rules. PHLX Rule 748(h) requires member organizations to establish,
maintain, and enforce WSPs, and a system for applying such procedures, reasonably
designed to prevent and detect, insofar as practicable, violations of securities laws andregulations, including the Exchange's By-Laws and Rules.
2. Pursuant to PHLX Rule 707, members shall not engage in conduct inconsistent with justand equitable principles of trade.
Lime's Direct Market Access Customers
3. During the Review Period, Lime offered its direct market access customers the ability to
trade directly on multiple securities exchanges under Lime's exchange memberships,

2

using one of Lime's unique four-letter codes, or market participant identifiers ("MPIDs").
Lime's direct market access customers included foreign and domestic trading entities andother institutional clients. As the broker-dealer offering direct market access tocustomers, Lime had supervisory obligations with respect to trading activity by its direct
market access customers entered through the Firm.
pes of Potentially Manipulative Trading in Direct Market Access Customer
Accounts
4. Lime's direct market access customers engaged in trading activity that raised red flags at
Lime for potential manipulative trading, including a variety of practices, such as"layering," "spoofing," "ramping," and "marking."
5. Layering typically includes placement of multiple limit orders on one side of the market
at various price levels that are intended to create the appearance of a change in the levelsof supply and demand. In some instances, layering involves placing multiple limit orders
at the same or varying prices across multiple exchanges or other trading venues. An orderis then executed on the opposite side of the market and most, if not all, of the multiple
limit orders are immediately cancelled. The purpose of the multiple limit orders that aresubsequently cancelled is to induce, or trick, other market participants to enter orders dueto the appearance of interest created by the orders such that the trader is able to receive amore favorable execution on the opposite side of the market.
6. Similar to layering, spoofing involves placement of non-bona fide orders, generally
inside the existing national best bid or offer, with the intention of briefly triggering some
type of response from another market participant, followed by cancellation of the nonbona fide order, and the entry of an order on the other side of the market.
7. Ramping includes trading practices designed to artificially increase or decrease the priceof a security prior to the open or close for the benefit of resting order interest, i.e., placing
unexecuted on-open or on-close orders in advance of an exchange's opening or closing
cross.
8. Marking involves attempting to influence the opening or closing price of a security byeffecting purchases or sales at or near the open or close of normal trading hours. Such
activity can artificially inflate or depress the closing price for the security.
Lime Failed to Reasonabh Supervise for Potential Manipulative Trading= 1:n Its
Direct Market Access Customers
9. Lime failed to establish and maintain a supervisory system and WSPs reasonably
designed to achieve compliance with rules prohibiting layering, spoofing, ramping,marking the open or close, and other potentially manipulative trading.
10. Throughout the Review Period, Lime's supervisory system for reviewing for potentiallymanipulative trading by direct market access customers was dependent on a commercial
surveillance system that generated reports for various forms of violative trading activity(the "Surveillance System"). Lime determined the parameters for the Surveillance3System to generate alerts for ramping, marking, layering, and spoofing.
11. Lime's WSPs identified the Surveillance System and described the exception reports thatit generated for potentially manipulative trading by direct market access customers. The
WSPs stated how often Lime's Chief Compliance Officer ("CCO") or the CCO'sdesignee should review exception reports and required that reviews be documented. But
the WSPs did not describe how to conduct the reviews, the factors to consider inreviewing the exception reports for potentially manipulative trading activity, or how thereviews of exception reports were supervised by the Firm. Nor did the WSPs explain
under what circumstances the reviewer should escalate concerns regarding any alert in an
exception report for direct market access customers' trading activity or instead close analert with no further action.
12. During the Review Period, Lime's practice was to place reviewed Surveillance System
alerts in one of three categories: "watch," "investigation," or "no further action." The
WSPs required that all "watch" alerts be "explained" in the Surveillance System'scomment field. The WSPs, however, did not state any factors to consider when placing
an alert under "watch" status, what the reviewer should explain about the "watch" alert inthe comment field, or how the Firm should supervise such alerts. Moreover, the WSPs
provided no guidance concerning alerts placed under "investigation" or those closed with"no further action." Lime's WSPs and its supervisory system failed to include factors toconsider in determining when such determinations were appropriate or how suchdeterminations would be supervised.
13. During the Review Period, Lime tasked a single analyst with manually reviewing theSurveillance System alerts. Lime delegated to the analyst authority to investigate andclose out surveillance alerts, but did not provide the analyst with any written guidance or
explanation of the factors to consider in reviewing the alerts and determining alert
categories or dispositions. Before joining the Finn, the analyst had not used theSurveillance System or conducted surveillance for all the forms of potentiallymanipulative trading identified by the Surveillance System.
14. During the Review Period, Lime failed to reasonably respond to red flags of potentiallymanipulative trading by the Firm's direct market access customers. These red flags
included thousands of Surveillance System alerts that were generated by two suchcustomers, including the following:a. Customer A, a foreign investment fund, generated over 900 Surveillance System
alerts for potential layering or spoofing between March 2015 and July 2016. Eachtime that Lime's analyst questioned Customer A about an alert, the analyst
accepted the customer's explanation of the trading and closed the alert with nofurther action.
b. Customer B, a domestic investment fund, generated over 1,000 Surveillance
System alerts, including over 500 alerts for possible ramping and marking theclose, between December 2014 and July 2016. Each time that Lime's analyst
questioned Customer B about an alert, the analyst accepted the customer's

4explanation of the trading and closed the alert with no further action.
15. The acts, practices, and conduct described above constituted violations of PHLX Rules
748 and 707.
B. The Firm also consents to the imposition of the following sanctions:
1. A censure;
2. A total fine of $625,000, of which $52,500 is payable to PHLX;2 and3. An undertaking to provide a written report to FINRA within 90 days after thedate of the Notice of Acceptance of this AWC, concerning reasonable controls,
procedures, and other measures taken by the Firm to remediate the violative
conduct described herein regarding the Firm's supervision of direct market
access customer activity with respect to potential manipulative trading by its
customers. The written report shall be certified by a registered principal who isalso a senior executive officer of the Firm and shall address, at a minimum, theimplementation and performance of the Firm's controls, procedures, and othermeasures; the steps taken by supervisory personnel to achieve compliance withregard to supervision of direct market access customer trading and the results ofsuch supervisory reviews; training; and modification or recommendations for
improvements to the controls, procedures, and other measures and dates of theeffectiveness of such modifications or planned implementation of such
recommendations. Upon written request showing good cause, FINRA staff may
extend any of the procedural dates set forth herein.
4. Acceptance of this AWC is conditioned upon acceptance of similar settlementagreements in related matters between the Firm and each of the following selfregulatcry organizations: (i) Cboe BYX Exchange, Inc.; (ii) Cboe BZX
Exchange, Inc.; (iii) Cboe EDGA Exchange, Inc.; (iv) Cboe EDGX Exchange,
Inc.; (v) the NASDAQ Stock Market LLC; (vi) Nasdaq BX, Inc.; and (vii)FINRA.
Respondent agrees to pay the monetary sanction upon notice that this AWC has been
accepted and that such payment is due and payable. Respondent has submitted a Payment
Information form showing the method by which it proposes to pay the fine imposed.
Respondent specifically and voluntarily waives any right to claim that it is unable to pay,
now or at any time hereafter, the monetary sanction imposed in this matter.
The sanctions imposed herein shall be effective on a date set by FINRA staff.

2 The balance of the fine will be paid to the self-regulatory organizations referenced in paragraph l.B.4 below

5

WAIVER OF PROCEDURAL RIGHTS
Respondent specifically and voluntarily waives the following rights granted under the PHLX's
Code of 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 the
allegations 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's Board of Directors 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 PHLX Review Council, or any member of the PHLX
Review Council, 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
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,
in connection with such person's or body's participation in discussions regarding the terms andconditions of this AWC, or other consideration of this AWC, including its acceptance orrejection.
HI.
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 FINRA's Department of Enforcement
and the PHLX Review Council, the Review Subcommittee, or the Office ofDisciplinary Affairs ("ODA"), pursuant to PHLX Rule 9216;

B.

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

If accepted:
1.

This AWC will become part of Respondent's permanent disciplinary

6

record and may be considered in any future actions brought by PHLX or
any other regulator against the Firm;

D.

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
in this provision affects Respondent's right to take legal or factual
positions in litigation or other legal proceedings in which PI-ILX is not a
party.

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.

7

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 has agreed to the AWC's provisions voluntarily; and that
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.

-7 1 (-3 ) '5

Lime Brokerage LLC
Respondent

Date

By:
Name:
lAa'ipTitle:
Reviewed by:

n A 18Co

opec yJame
K pecky Schumacher Rosenburg PC
120 North LaSalle Street, Suite 2000
Chicago, IL 60602
Counsel for the Firm

Accepted by PHLX:

of i 1/,Signed on behalf of the
Director of ODA, by delegated authority

Date

Elyse D. Kovar, Senior Counsel
FINRA Department of Enforcement
Signed on behalf of the PHLX, by delegatedauthority from the Director of ODA

8PAYMENT INFORMATION
The fine amount will be reflected on an upcoming invoice and will be direct debited from theaccount for your firm that the Exchange currently has on file. Please DO NOT submit payment
at this time.
Please inform your finance or applicable department of this forthcoming debit.
If you would like to arrange for an alternative method of payment, please enter the billing
contact information below and the Exchange's Billing Department will contact you. Otherwise,
please leave the following information blank.
Billing Contact Name:; An

Billing Contact Address: 100%

D Greit t,

Ain -0-bt Antr:0)

Billing Contact Email: (2) D V.,ve',r,A. 9
Billing Contact Phone Number:

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Respectfully submitted,
Respondent
Lime Brokerage LLC
By:
Nam:

FFNE,D

Title: _

ED

Date

9

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