Firm Fined for Municipal Reporting and Disclosure Failures
A firm settled FINRA charges for failing to use the required special condition indicator in municipal securities trades and for omitting or misstating mark-up disclosures on retail confirmations.
According to the AWC, the firm took part in municipal securities offerings in various roles—including "sole underwriter, syndicate manager, syndicate member, selling group member, or distribution participant." FINRA found that over 5,400 instances, the firm failed to append the "required special condition indicator" when reporting List Offering Price and Takedown Transactions to the Real-Time Transaction Reporting System ("RTRS").
FINRA found that the firm issued "approximately 50" municipal securities confirmations and "approximately 50" corporate debt confirmations to retail customers that either omitted or misstated required mark-up or mark-down disclosures. FINRA said that these failures "stemmed from an error in the firm’s order management system," which caused either omissions or inaccurate reporting of the mark-up or mark-down, including incorrect PMP percentages and "data order entry errors." FINRA noted that the firm was made aware of the disclosure failures in May 2023, but "did not remediate the error" in its order management system until January 2024.
FINRA also determined that the firm’s supervisory procedures "failed to specify what steps" personnel should take to verify the correct use of the special condition indicator—and no such reviews were conducted. FINRA said the firm's supervisory procedures called for sampling customer confirmations but "did not explain how such reviews should be conducted or documented," and that no reviews occurred. FINRA credited the firm for subsequently "conducting and documenting daily reviews" updated its WSPs, and providing "additional training" to employees
FINRA concluded that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2232 ("Customer Confirmations"), 3110 ("Supervision") and MSRB Rules G-14 ("Reports of Sales or Purchases"), G-15 ("Confirmation, Clearance, Settlement and Other Uniform Practice Requirements with Respect to Transactions with Customers") and G-27 ("Supervision").
To settle the charges, the firm agreed to (i) a censure and (ii) a $55,000 fine.