Flow Traders U.S. LLC has agreed to pay a fine of $50,000 as part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From August 2019 to April 2023, Flow Traders failed to establish, document, and maintain reasonably designed financial risk management controls and supervisory procedures to prevent orders from exceeding the company's predetermined capital thresholds.

The company's Written Supervisory Procedures (WSP) prescribed maximum nominal value position limits for symbols where the company acted as a registered market maker, as well as for symbols where the company was not a registered market maker and for manual orders. In practice, the maximum position limit values set during reviews for individual stock symbols were narrower than those specified in the company's WSP. However, even these narrower position limits were unreasonable.

For the majority of securities reviewed during this period, Flow Traders' usage of maximum daily position limit values per symbol was less than 5% of the company's set maximum daily position limit value per symbol. These predetermined capital thresholds were unreasonable as they were set too high, and Flow Traders failed to demonstrate how these thresholds were reasonably designed to meaningfully limit the financial risks incurred in the company's trading activities. In April 2023, the company amended its predetermined capital thresholds and related supervisory procedures.

By failing to establish, document, and maintain reasonably designed financial risk management controls and supervisory procedures to prevent orders from exceeding the company's predetermined capital thresholds, Flow Traders violated Exchange Act Section 15(c)(3), Exchange Act Rule 15c3-5(b) and (c)(1)(i), as well as FINRA Rules 3110 and 2010.

Additionally, from August 2019 to April 2023, Flow Traders failed to establish, document, and maintain reasonably designed financial risk management controls and supervisory procedures to prevent erroneous orders by the company. The company's WSP prescribed maximum nominal value for each order for symbols where the company acted as a registered market maker, symbols where the company was not a registered market maker, and manual orders.

In practice, the actual limits set by the company for each symbol were narrower than those specified in the WSP. However, even these narrower limits were unreasonable.

For the majority of securities sampled during this period, Flow Traders set maximum single order size limits for each symbol that exceeded 100% of the average daily trading volume for each symbol. These limits were unreasonable as they were set too high and failed to reasonably prevent the entry of erroneous orders. Flow Traders failed to demonstrate how its maximum daily order size thresholds were reasonably aligned with the trading characteristics of each symbol.

By failing to establish, document, and maintain reasonably designed financial risk management controls and supervisory procedures to prevent erroneous orders, Flow Traders violated Exchange Act Section 15(c)(3), Exchange Act Rule 15c3-5(b) and (c)(1)(ii), as well as FINRA Rules 3110 and 2010.

In addition to the fine, the company also agreed to accept censure.