Firm Settles FINRA Charges for Failure to Report Suspicious Trades

A broker settled FINRA charges for failing to catch suspicious or potentially manipulative trading in thinly traded, low-priced stocks.

According to the AWC, during the relevant period, the firm acted as an outsourced trading desk, executing equities and options for U.S. and foreign institutional customers and routing foreign-securities orders to an overseas affiliate. FINRA found that some customers traded volatile low-priced securities, including shares of issuers from high-risk jurisdictions, and one customer traded on the same days it published research reports on the issuers - an activity FINRA said exposed the firm to manipulation and other suspicious-trading risks.

FINRA found that the firm used a manual review of its daily trade blotter that could not detect patterns across accounts or days, missing instances in which a customer's trades made up a large share of a security's volume and accounts that repeatedly bought and sold the same security at a loss. FINRA found that the firm's written program listed red flags that were not tailored to its business and set out no procedures for surveilling customer trading. Further, an automated system the firm adopted failed to capture options trades and flagged market dominance only when one customer's trading reached half the average daily volume in a security.

The firm consented to findings that it violated FINRA Rules 3310(a) and 3310(f) ("AML Compliance Program") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

The firm agreed to a censure and a $130,000 fine.