Kestrel Securities — WSP: Equities Trading Desk

**Document owner:** Head of Compliance **Approver:** Chief Compliance Officer (CCO) **Annual review:** Required under FINRA Rule 3130; next review July 2026. **Distribution:** All Equities Trading Desk personnel and supervising principals.

1. Purpose and scope

These Written Supervisory Procedures (WSPs) implement Kestrel Securities' supervisory system for the Equities Trading Desk pursuant to FINRA Rule 3110. They cover order entry, routing, execution, allocation, and post-trade review for both customer and proprietary equity orders in NMS stocks and OTC equity securities. They do not cover options (see `Kestrel-WSP-Options`), municipal securities (`Kestrel-WSP-Muni`), or fixed-income (`Kestrel-WSP-FixedIncome`).

These WSPs are read in conjunction with:

- `Kestrel-Best-Execution-Policy` — the operative best-execution policy implementing FINRA Rule 5310; - `Kestrel-Market-Access-Controls` — pre-trade risk controls implementing 17 CFR 240.15c3-5; - `Kestrel-Reg-SHO-Locate-Policy` — short-sale locate procedures under 17 CFR 242.200-204; - `Kestrel-Reg-BI-Disclosure-Procedures` — recommendation-handling procedures under 17 CFR 240.15l-1; - `Kestrel-Code-of-Ethics` — personal-trading and information-barrier policy.

2. Supervisory structure

2.1 Supervisory hierarchy

- **Head of Equities Trading** (Series 24, Series 7) — primary supervisor of all desk personnel; reports to the President. - **Equities Desk Compliance Officer (EDCO)** (Series 14, Series 24) — embedded compliance officer; reports administratively to the Head of Equities Trading and functionally to the CCO. - **Trading Floor Supervisors** — three Series 24 principals, each assigned a defined book of associated persons. - **Operations Manager** — supervises post-trade allocation, confirmation, and clearance.

2.2 Designation as Office of Supervisory Jurisdiction

The Equities Trading Desk operates within the New York headquarters, which is designated as Kestrel's sole Office of Supervisory Jurisdiction under FINRA Rule 3110(a)(3). All order acceptance, market making, and final-approval functions for the desk occur at this OSJ.

3. Order entry and pre-trade review

3.1 Order acceptance

All customer orders are received electronically (via FIX from the firm's order-management system, "OMS") or by phone. Phone orders must be:

1. Time-stamped on receipt by the receiving registered representative; 2. Entered into the OMS within 60 seconds of receipt; and 3. Subject to a same-day review by a Trading Floor Supervisor.

The OMS records original entry time, modification history, and routing destination for every order, satisfying the order-memorandum requirement of 17 CFR 240.17a-3(a)(6).

3.2 Pre-trade controls

Every order, regardless of channel, passes through Kestrel's pre-trade risk controls before it is routed to a venue. Controls include:

- **Symbol restrictions** — orders in restricted-list, watch-list, and control-list securities are blocked or routed for principal review per `Kestrel-Information-Barriers`; - **Order-size sanity** — hard block on orders exceeding 10% of ADV or $5 million notional, whichever is smaller (override requires a Trading Floor Supervisor approval logged in the OMS); - **Price-collar checks** — hard block on limit orders >5% away from last sale (overridable); - **Short-sale locate** — short orders may not be released without a documented locate per `Kestrel-Reg-SHO-Locate-Policy`; - **Reg SHO Rule 201 short-sale price test** — where in effect, the system enforces the price-test restriction set forth at 17 CFR 242.201; - **Capital and credit thresholds** — the order is checked against the customer's intraday credit limit and against the firm's net capital cushion under 17 CFR 240.15c3-1.

These controls are maintained under `Kestrel-Market-Access-Controls` per 17 CFR 240.15c3-5 and reviewed annually.

4. Order routing

4.1 Routing destinations

Default routing is established by the Equities Trading Desk in consultation with the Best Execution Committee (`Kestrel-Best-Execution-Policy`). Approved routing destinations as of the effective date of these WSPs:

- **Wholesale market makers**: Venue A and Venue B (held retail market and marketable-limit flow); - **Exchange order routers**: NYSE, Nasdaq, Cboe BZX, NYSE Arca; - **ATS access**: One dark pool ATS for non-marketable limit orders >1,000 shares; - **DMA pass-through** (institutional-only, currently de minimis).

Any change to the default routing table requires written approval by the Head of Equities Trading and the CCO, and a same-day update to the publicly disclosed Rule 606 quarterly report inputs.

4.2 Customer-directed orders

A customer-directed order — one in which the customer specifies the execution venue — is routed only to that venue and is not subject to the default routing logic. Customer direction must be documented in the order memorandum and confirmed in writing for institutional accounts. Customer-directed orders are excluded from the Rule 606(a) public disclosure but are reportable on customer-specific Rule 606(b) requests.

5. Execution and allocation

5.1 Principal execution

Kestrel acts as principal in a defined set of OTC equity securities for which it is a registered market maker. Principal execution is permitted only in those securities, and only at prices that satisfy:

- The best-execution standard of FINRA Rule 5310; - The fair-pricing standard of FINRA Rule 2121 (markups and markdowns); - The order-handling rules of SEA Rule 11Ac1-4 (limit-order display) where applicable.

Principal execution against a customer order in a non-market-making security is prohibited absent an explicit pre-trade approval logged in the OMS by a Trading Floor Supervisor.

5.2 Allocations of block orders

Block orders intended for allocation across multiple customer accounts must be entered with a pre-trade allocation schedule. Post-trade re-allocation is prohibited absent written CCO approval, which will be granted only in the case of demonstrable error per `Kestrel-Error-Correction-Policy`.

6. Post-trade supervisory review

6.1 Daily review

A Trading Floor Supervisor must complete a daily exception-based review covering:

- Trades flagged by the trade-surveillance system (price spikes, size outliers, atypical timing); - Orders that triggered any pre-trade override; - Customer-directed orders to non-default venues; - Late allocations and any post-trade modifications.

The review is documented in the daily blotter signoff in the OMS.

6.2 Quarterly best-execution review

The Best Execution Committee meets quarterly under `Kestrel-Best-Execution-Policy` to perform the regular and rigorous review required by FINRA Rule 5310 Supplementary Material .02. EDCO produces a pre-meeting analytics pack for the committee.

6.3 Insider-trading surveillance

Pursuant to FINRA Rule 3110(d) and `Kestrel-Information-Barriers`, the EDCO oversees a daily review of trades in securities subject to a restricted-list or watch-list entry. Suspect trades are escalated to the Insider Trading Review Committee (ITRC) within one business day.

7. Recordkeeping

All order memoranda, executions, allocations, and supervisory reviews are preserved electronically in accordance with 17 CFR 240.17a-3 and 17 CFR 240.17a-4. Books and records retention periods follow the firm-wide retention schedule maintained by the General Counsel's office.

The firm uses the audit-trail electronic-recordkeeping option permitted under the 2022 amendments to 17 CFR 240.17a-4(f); the annual senior- officer representation is executed by the Chief Technology Officer.

8. Training

8.1 New-hire training

Every new associated person of the Equities Trading Desk completes three hours of trading-desk-specific training within 30 days of registration. Training includes a walkthrough of these WSPs, of the order-management system, and of the trade-surveillance escalation path.

8.2 Annual training

Annual training is required under FINRA Rule 3110(a)(7). Training content for the desk includes:

- Reg SHO and short-sale handling; - Market access and pre-trade controls; - Best-execution and routing economics, including payment-for-order-flow conflicts under FINRA Rule 5310; - Reg BI obligations to the extent applicable to recommendations originating from the desk; - Cyber and confidentiality obligations.

Completion is tracked in the Compliance Learning Management System.

9. Annual review and amendment

These WSPs are reviewed and reaffirmed annually as part of the FINRA Rule 3130 certification process. Amendments outside the annual cycle may be made by the CCO in response to regulatory developments, findings from internal or external audits, or material changes in business activity. Amendments are communicated to all desk personnel within 10 business days of their effective date.

10. References

- FINRA Rule 3110 (`FINRA-Rule-3110-3130`) - FINRA Rule 5310 (`FINRA-Rule-5310`) - 17 CFR 240.15c3-1, 240.15c3-3 (`17 CFR 240.15c3-1, 240.15c3-3`) - 17 CFR 240.15c3-5 (`17 CFR 240.17a-3, 240.17a-4, 240.15c3-5`) - 17 CFR 240.17a-3, 240.17a-4 (`17 CFR 240.17a-3, 240.17a-4, 240.15c3-5`) - 17 CFR 242.200-204 (`17 CFR 242.200-204`) - 17 CFR 240.15l-1 (`17 CFR 240.15l-1`) - Kestrel-Best-Execution-Policy - Kestrel-Market-Access-Controls - Kestrel-Reg-SHO-Locate-Policy - Kestrel-Reg-BI-Disclosure-Procedures - Kestrel-Code-of-Ethics - Kestrel-Information-Barriers - Kestrel-Error-Correction-Policy