NASDAQ PHLX LLCNOTICE OF ACCEPTANCE OF AWC
Certified, Return Receipt Requested
TO:

Wolverine Trading, LLC
Mr. David L. Cavicke
Chief Legal Officer
175 W. Jackson Blvd.
Suite 200
Chicago, IL 60604

FROM:

Nasdaq PHLX LLC ("PHLX")
do Financial Industry Regulatory Authority ("FINRA")
Department of Enforcement
9509 Key West Avenue
Rockville, MD 20850

DATE:

May 2, 2018

RE:

Notice of Acceptance of Letter of Acceptance, Waiver and Consent No. 20140414439-06

Please be advised that your above-referenced Letter of Acceptance, Waiver and Consent ("AWC") hasbeen accepted on May 2, 2018 by the PHLX Review Council's Review Subcommittee, or by the Officeof Disciplinary Affairs on behalf of the PHLX Review Council, pursuant to PHLX Rule 9216. A copyof 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 disciplinaryaction. 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 tonotify the Compliance Assistant, Department of Enforcement, 9509 Key West Avenue, 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.

Wolverine Trading, LLC
Page 2

If you have any questions concerning this matter, please contact Eustace Francis, Senior Counsel,
at (215) 209-7002.

,...-_,....

ert A. Marchm
RA Fellow
epartment of E forcement, FINRA
Signed on behalf • f PHLX
Enclosure
FINRA District 8 — Chicago
Edward Wegener
Senior Vice President and Regional Director(Via email)Mr. Craig MurrayCounsel for Respondent
Wolverine Trading, LLC
175 W. Jackson Blvd.
Suite 200
Chicago, IL 60604

NASDAQ PHLX LLCLETTER OF ACCEPTANCE, WAIVER AND CONSENT
NO. 20140414439-06
TO:Nasdaq PHLX LLC
c/o Department of Enforcement
Financial Industry Regulatory Authority ("FINRA")

RE:Wolverine Trading, LLC, Respondent
Broker-Dealer
CRD No. 36848

Pursuant to Rule 9216 of Nasdaq PHLX LLC ("PHLX") Code of Procedure, Wolverine Trading,
LLC (the "Firm" or "Respondent") submits this Letter of Acceptance, Waiver and Consent("AWC") for the purpose of proposing a settlement of the alleged rule violations describedbelow. 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, 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
adjudication of any issue of law or fact, to the entry of the following findings by PHLX:BACKGROUND
The Firm has been a PIILX member since September 26, 2000, and its registration
remains in effect. The Firm has no relevant disciplinary history.
SUMMARY
During the period between January 2014 and the present (the "Review Period"), the staffof FINRA's Market Regulation Department (the "staff'), on behalf of the PHLX andvarious other options exchanges, conducted a review of the Firm's compliance with Rule15c3-5 promulgated under the Securities Exchange Act of 1934, as amended (the"Exchange Act") and Exchange Rules 707 and 748(h). As detailed further below, theFirm had failed to establish and maintain an adequate system of risk management
controls and supervisory procedures, including written supervisory procedures ("WSPs"),
and an adequate system of follow-up and review, reasonably designed to manage thefinancial, regulatory, and other risks of providing market access, including, but notlimited to, risk management controls and supervisory procedures reasonably designed to:(i) prevent the entry of erroneous orders by rejecting orders that exceed appropriate priceor size parameters or that indicate duplicative orders; (ii) prevent the entry of orders that
do not comply with regulatory requirements that must be satisfied on a pre-order entry

STAR No. 20140414439 (ETF)basis; (iii) manage the risk of unintended or inadvertent quotations generated by amalfunctioning system; and (iv) address or otherwise codify the Firm's obligation toprevent the entry of excessive messages on a pre-trade basis, or document changes to predefined quoting parameters set by users of the Firm's real-time quote-monitoring andalert application.
FACTS AND VIOLATIVE CONDUCT
1. On November 3, 2010, the SEC adopted SEC Rule 15c3-5 (sometimes referred as the"Market Access Rule") under the Exchange Act to address concerns relating to the practiceof broker-dealers affording direct market access to customers. SEC Rule 15c3-5 requires,among other things, that a broker-dealer with market access establish risk management
controls and supervisory procedures that are reasonably designed to limit the financial
exposure of the broker-dealer and ensure compliance with all regulatory requirements
applicable to market access. The rule became effective on July 14, 2011.
2. Rule 15c3-5(b) requires brokers and dealers with market access to "establish, document, andmaintain a system of risk management controls and supervisory procedures reasonably
designed to manage the financial, regulatory, and other risks of this business activity."
3. Rule 15c3-5(c) requires, among other things, broker-dealers with market access to have risk
management controls and supervisory procedures that are reasonably designed to preventthe entry of erroneous or duplicative orders and ensure compliance with all pre-trade
regulatory requirements.
4. Exchange Rule 748(h) requires member organizations to establish, maintain and enforce
written supervisory procedures ("WSPs"), and a system of supervision for applying suchprocedures, that are reasonably designed to supervise the types of businesses and activities
in which they and their associated persons engage in order to achieve compliance with, andto prevent and detect violations of, applicable securities laws and regulations, including theBy-Laws and Rules of the Exchange.
5. Exchange Rule 707 prohibits member organizations from engaging in conduct inconsistent
with just and equitable principles of trade.
6. During the Review Period, Respondent's risk management system and supervisory
procedures, including its quoting application, were not reasonably designed to monitor,regulate, detect and prevent the dissemination of excessive, erroneous, and duplicativeorders, quotations and/or cancellations, or otherwise ensure compliance with Rule 15c3-5
promulgated under the Exchange Act.
7. Specifically, the Firm's T+1 quote surveillance report, which the Firm implemented in 2012
to compare aggregate daily quote count by options across multiple options exchanges, was
not reasonably designed to: (i) provide real-time monitoring of quoting activity; (ii) detectand generate real-time alerts regarding intraday spurts in quoting activity or when predefined quote count thresholds were exceeded; (iii) monitor and detect quote cancellations;2and (iv) provide real-time surveillance of quoting activity across multiple options
exchanges.
8. Additionally, during the Review Period, the Firm's quoting application, including its built-incontrols, and modifications to its logic and functionalities, were not adequately designed todetect and prevent the unintended entry of excessive, erroneous, or duplicative quotations
and cancellations to the Exchange. For example, during the Review Period, the Firm
implemented and deployed certain quoting logics and functionalities that caused unintended
submissions of excessive, erroneous, and/or duplicative quotations and/or cancellations tothe Exchange while the application was disseminating quotes at the widest permissible
quote width. However, the application was not reasonably configured, and its built-in safetycontrols, such the throttling mechanism and duplicate quote-prevention functionality, were
not reasonably designed to operate, detect or prevent excessive or duplicative quotations andquote cancellations generated while quoting at the widest permissible quote width.
9. Finally, the Firm's risk management controls and WSPs were inadequate, in that they did
not: (i) codify the Firm's obligation to prevent the entry of excessive messages on a pretrade basis, or to document changes and reviews of changes to the pre-defined parameters
set by users of its real-time automated alert system; (ii) have pre-trade controls to preventthe entry of orders that exceeded appropriate price parameters on an order-by-order basis;and (iii) have controls to prevent the inadvertent entry of messages that exceeded
configurable thresholds.
10. The acts, practices, and conduct described above in paragraphs 6 through 9 constituteviolations of Rules 15c3-5(b) and 15c3-5(c) promulgated under the Exchange Act, andPHLX Rules 707 and 748(h).
B.

Respondent also consents to the imposition of the following sanctions:
A censure; a total fine of $450,000, of which $45,000 shall be paid to PHLX;' andan undertaking requiring Respondent to address the supervisory deficiencies
described in this Offer and to ensure that it has implemented controls andprocedures that are reasonably designed to achieve compliance with the rules andregulations cited herein. Within 60 days after this Offer becomes final,
Respondent shall submit to the COMPLIANCE ASSISTANT, LEGALSECTION, MARKET REGULATION DEPARTMENT, 9509 KEY WESTAVENUE, ROCKVILLE, MD 20850, a written representation from a senior
management firm executive, to MarketRegulationComp@finra.org that provides
the following information: (1) a reference to this matter; (2) a representation that
Respondent has revised its written supervisory procedures as indicated above; and(3) the date(s) this was completed.
Acceptance of this AWC is conditioned upon acceptance of similar settlement

1 The balance of the fine shall be paid to Cboe BZX Exchange, Inc. (f/k/a Bats BZX Exchange, Inc.), Cboe EDGX
Exchange, Inc. (f/k/a Bats EDGX Exchange, Inc.), Boston Options Exchange LLC, NASDAQ BX, Inc., NASDAQ
Options Market LLC, NYSE Arca, Inc., and NYSE American LLC (f/k/a NYSE MKT LLC).

3

agreements in related matters between the firm and Cboe BZX Exchange, Inc.
(f/k/a Bats BZX Exchange, Inc.), Cboe EDGX Exchange, Inc. (f/k/a Bats EDGX
Exchange, Inc.), Boston Options Exchange LLC, NASDAQ BX, Inc., NASDAQ
Options Market LLC, NYSE Arca, Inc., and NYSE American LLC (f/k/a NYSEMKT LLC).
Respondent agrees to pay the monetary sanction(s) in accordance with its executedElection of Payment Form.
Respondent specifically and voluntarily waives any right to claim that it is unable to pay,
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 staffII.
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 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 PHLX 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 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 anyright to claim that a person violatedthe 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.

4

In.
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 F1NRA'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 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 1M-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 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 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 ofPHLX or its staff.

5

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.
P ce,vv2D/ gel

Date

Wolverine Trading, LLC
RespondentCr- ))By:Print Name: `)11 ""hCif e,A

Department of EnforcentTitle:c( 1>Fri c et-Reviewed by617AA,-/

1"."---Aty NameCounsel for Respo dent
Name of Firm
Address
City/State/Zip
Accepted by PHLX:.5021 V0/8
Date

FINRA Fellow
Signed on behalf of PHLX, by delegatedauthority from the Director of ODA

6

ELECTION OF PAYMENT FORM
The Firm intends to pay the fine proposed in the attached Letter of Acceptance, Waiver andConsent by the following method (check onc):
0A Firm check or bank check for the full amount

1;1

Wire transfer
Respectfully submitted,

Rtspondent
Wolverine Trading, LLC

3 Tr ba- v.7 ,7DateBy:

AName:
Title:

C, ks2'14 iert A,.?( 0,r-f c

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