Broker-Dealers Fined for Inaccurate Trade Reports

Two affiliated broker-dealers settled FINRA charges (see here and here) for trade reporting and supervisory failures.

In the Letters of Acceptance, Waiver, and Consent, FINRA stated that the broker-dealers' trade reports contained inaccurate capacity codes, which indicate if "the trade is as principal, riskless principal, or agent[.]" The inaccuracies resulted from coding errors in the firms' order management systems. In addition, FINRA found that the memoranda associated with the transactions included an incorrect capacity (principal or agency) due to a failure to update relevant agreements.

FINRA stated that the broker-dealers' supervisory systems were not designed to review executed order flows and ensure compliance with applicable securities laws and regulations. As a result, FINRA found that the broker-dealers both violated (i) FINRA Rules 7230A, 7230B, 7330 ("Trade Report Input"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 4511(a) ("General Requirements") and 3110 ("Supervision") and (ii) Exchange Act Rule 17a-3 ("Records to be made by certain exchange members, brokers and dealers").

To settle the charges, the broker-dealers agreed to (i) a censure and (ii) respective fines of $135,000 and $870,000.