Broker-Dealer Settles Charges for Inaccurate Order Execution Quality Reports

A broker-dealer settled FINRA charges for publishing inaccurate data in required monthly reports on order execution quality. The broker-dealer operated an alternative trading system ("ATS") that received covered orders reportable under Regulation NMS Rule 605 ("Disclosure of order execution information"), which often divided larger "parent" market orders into smaller "child" limit orders for execution.

FINRA found that the broker-dealer underreported the number of covered orders and related shares received on the broker-dealer's ATS with respect to multiple monthly reports. The inaccuracies were attributed to a coding error, which resulted in the execution quality statistics being derived from the "parent" orders instead of the "child" orders. Additionally, FINRA found that due to a separate coding error, certain monthly reports counted the number of cancel shares for certain covered orders twice. FINRA also found that the broker-dealer's supervisory controls regarding covered orders (i) used an unreasonably small sample size and (ii) excluded canceled covered orders.

FINRA determined that the broker-dealer violated Regulation NMS Rule 605, FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision"). To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $475,000.