Notice, Pursuant to Exchange By-law 18-2, of Disciplinary
Action Against Keystone Trading Partners, MemberOrganization
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. 10-21
Enforcement No. 2010-20
On December 21, 2010, the Business Conduct Committee (the “Committee”) issued adisciplinary decision against Keystone Trading Partners (“Keystone” or the “Firm”), amember organization of the Exchange. In response to a Statement of Charges issued inthis action, Keystone submitted an Offer of Settlement, Stipulation of Facts and Consentto Sanctions (“Offer”). Solely to settle this proceeding, and without admitting or denying
the charges, Keystone consented to findings that during the periods November 1, 2008
and September 30, 2009, and January 1, 2008 and October 31, 2008 (collectively, the“Relevant Period”), it had violated Section 17 of the Securities Exchange Act of 1934, asamended (“Exchange Act”), Rules 17a-3, 17a-3(a)(19)(ii), 17a-4(b)(3), 17a-5, 17f-2 andRule 200(g) of Regulation SHO promulgated under the Exchange Act, and Exchange Rules
604(a), 604(b), 620(b), 623, 703, 748(e)(1), 748(g), 757, and 760, by, among otherthings: (i) failing to keep accurate books and records; (ii) filing inaccurate Financial andOperational Combined Uniform Single and Financial Condition Reports with the Exchange;(iii) failing to maintain written compensation agreements pertaining to its compensation
arrangement with four of its associated persons; (iv) failing to preserve, or to provide
evidence that it had preserved, several paid or unpaid invoices relating to its business; (v)failing to secure, and therefore could not provide to FINRA for processing andidentification, the fingerprint records of five of its associated persons; (vi) fingerprinting
five of its associated persons but failing to submit their fingerprint records to FINRA forprocessing and identification; (vii) improperly marking 16 options orders as “sell short”
rather than as “sell long,” and 33 options orders as “sell long” rather than as “sell short;”(vii) failing to utilize the Web Central Registration Depository (the “Web CRD”) databaseto: (a) submit a Uniform Application for Securities Industry Registration or Transfer(“Form U-4”) filing on behalf of one of its associated persons to reflect that he was aregistered representative rather than a Non-Registered Person (“NRF”); and (b) maintaina Form U-4 that accurately reflected that one of its associated persons was a registeredrepresentative; (ix) failing to timely utilize the Web CRD database to file a Uniform
Termination Notice for Securities Industry Registration filing on behalf of a former
employee to reflect the termination of his registration with Respondent; (x) failing totimely utilize the Web CRD database to: (a) register an associated person as an NRF; and(b) amend the NRF form of two associated persons to reflect the date each had been
terminated as an NRF; (xi) failing to provide any evidence of the training materials it had
utilized in its 2008 anti-money laundering (“AML”) annual compliance meeting andtraining session from which the Exchange could have determined whether any training
had been actually conducted and the adequacy of any such training; and (xii) failing toensure, or provide evidence that it had ensured, that an associated person had attended
Respondent’s annual compliance meeting
The Firm also consented, without admitting or denying the charges, to findings by theCommittee that Keystone had failed to establish, maintain and enforce written supervisory
procedures (“WSPs”), and a system for applying such procedures, that resulted insupervisory deficiencies regarding: (i) the duties and responsibilities of its Financial andOperations Principal; (ii) the requirement to utilize the WebFOCUS financial reporting
application to file, and to request extensions to file, periodic reports with the Exchange;and (iii) the Firm’s policy regarding the acceptance and holding of securities for AMLcompliance purposes.
Finally, Keystone also consented, without admitting or denying the charges, to findingsthat it had failed to comply, and enforce compliance, with its own WSPs that mandated
that it: (i) conduct a monthly review of its electronic communications and retain a log of
the number of such communications it had reviewed; (ii) secure from each principal andassociated person and retain an annual attestation of AML training; and (iii) supervise andmonitor its net capital on a moment-to-moment basis. Specifically, Keystone had failed
to: (a) retain a log of the electronic communications it had reviewed, or could nototherwise provide any evidence of what electronic communications, if any, it had
reviewed; (b) secure, or could not provide any evidence that it had secured, an annual
attestation of AML training from an associated person; (c) supervise and monitor, or could
not demonstrate how it had supervised and monitored, on a moment-to-moment basis,compliance with the net capital requirements of Rule 15c3-1 promulgated under theExchange Act.
Keystone’s Offer was accepted by the Committee and was the basis of its Decision. TheCommittee found that Keystone had violated Section 17 of the Exchange Act, Rules 17a-3,
17a-3(a)(19)(ii), 17a-4(b)(3), 17a-5, 17f-2 and Rule 200(g) of Regulation SHO
promulgated under the Exchange Act, and Exchange Rules 604(a), 604(b), 620(b), 623,703, 748(e)(1), 748(g), 757, and 760, concurred in the sanctions consented to by it, andordered the imposition of the following sanctions: (i) a censure; (ii) a $30,000 fine; and(iii) an undertaking, within 60 days of the issuance of a Decision by the Committee, to:(a) revise its WSPs to adopt, implement and maintain procedures andcontrols to detect and prevent violations of the fingerprinting, record
preservation, reporting and registration provisions of applicable
Exchange rules and the federal securities laws, and to govern theacceptance and holding of securities for AML compliance purposes;(b) fingerprint all required firm personnel and associated persons and timely
record all relevant fingerprint-related information in the CRD database;(c) timely submit to, and/or amend in, the CRD database its Application for
Broker-Dealer Registration, or Form BD, or the applicable NRF status,Form U-4, and/or Form U-4 of any associated person of the Firm, aswarranted by changed circumstances, federal securities laws andExchange rules; and(d) submit to William Bunting, FINRA Market Regulation, 1900 MarketStreet, Second Floor, Philadelphia, PA 19103, a signed, dated letter
providing the following:2

(1) a reference to this matter;(2) a representation that Keystone has revised its WSPs to address
the deficiencies identified by the Exchange;(3) the date the revised WSPs were implemented; and(4) a Corrective Action Statement detailing what specific actions it
has taken to demonstrate Keystone’s ability to monitor
compliance with the net capital requirements on a moment-tomoment basis.

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.

3