Nasdaq OMX Stockholm has fined Swedish investment bank Pareto Öhman SEK 500,000 (€56,377) for breaking the exchange’s rules in four separate instances. Pareto Öhman is a subsidiary of Pareto Securities, the investment banking arm of Nordic financial services company the Pareto Group.
Two of the rule breaches were caused by a programming fault in Öhman’s algorithm software – an event that Nasdaq OMX highlighted as an illustration of member responsibilities when trading on-exchange.
“Since exchange members have a responsibility to thoroughly test software prior to its use, Öhman is considered to have breached the exchange rules in both of these cases,” stated the exchange.
Two other incidents involved order entries that did not reflect the prevailing market value. The first consisted of a manual error in which a sell order was accidentally executed, resulting in shares being sold at a price that was different from market value. Secondly, Öhman set prices that deviated from a particular company’s market value, thus “failing its responsibility as a liquidity provider”.
The incident is far from the first of its kind at Nasdaq OMX Stockholm. In May 2011, the exchange fined three brokers – Carnegie Investment Bank, Skandiabanken and UBS – SEK 400,000 (€45,102) each for contravening its rules and regulations, by mediating sales orders subject to terms that deviated from the current market value of shares.
Pan-European regulator the European Securities and Markets Authority revealed trading guidelines in December 2011 that include provisions requiring brokers – but not exchanges – to submit descriptions of their trading algorithms and ensure they are used in an appropriate manner, by staff with the necessary expertise. The new rules are due to take effect by 1 May 2012.