Broker-Dealer Agrees to Settle FINRA Charges for OATS Reporting and Supervisory Failures
Commentary by Steven Lofchie
A broker-dealer settled FINRA charges for inaccurately reporting over 1 billion reportable order events ("ROEs") to the Order Audit Trail System ("OATS"), violating FINRA Rule 7450 ("Order Transmission Data Requirements") and FINRA Rule 3110 ("Supervision"). FINRA Rule 7540 requires broker-dealers to completely and accurately transmit to OATS information related to each order's: (i) receipt or origination; (ii) transmission; and (iii) modification, cancellation, and execution.
According to the Letter of Acceptance, Waiver and Consent, the broker-dealer either inaccurately, incompletely or improperly formatted 1,067,670,851 ROEs. FINRA alleged that the inaccuracies resulted from various deficiencies, including:
-
failure to understand the application of certain codes;
-
flaws within the logic of its own systems, as well as third-party execution and order management systems; and
-
the misclassification of a client account.
FINRA determined that the broker-dealer failed to implement and maintain a supervisory system to comply with OATS-related FINRA rules.
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a fine of $90,000 ($65,000 for OATS violations and $25,000 for related supervisory violations).
Commentary
Yet another illustration of the fact that when something goes wrong with technology, the number of violations could get very big, very fast.