Broker-Dealer Settles FINRA Charges for Sending Inaccurate Trade Confirmations
A broker-dealer settled FINRA charges for sending trade confirmations to customers that were materially inaccurate.
In a Letter of Acceptance, Waiver, and Consent, FINRA found that the broker-dealer sent trade confirmations that inaccurately reflected the (i) broker-dealer's execution capacity, (ii) price to the customer, (iii) market center of execution and (iv) average executed price. FINRA determined that these violations were a result of multiple underlying issues, some of which went undetected for several years, including programming issues and a misunderstanding of regulatory guidance.
Additionally, FINRA found that the broker-dealer's supervisory systems were deficient. The broker-dealer failed to monitor adequately compliance with confirmation requirements and Rule 605 of Regulation NMS ("Disclosure of order execution information").
As a result, FINRA found that the broker-dealer violated Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") and Section 17(a) ("Records and reports") of the Exchange Act as well as SEA Rule 10b-10 ("Confirmation of transactions") and Rule 17a-3(a)(8) ("Records to be made by certain exchange members, brokers and dealers"). Additionally, FINRA found that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 2232 ("Customer Confirmations"), Rule 3110 ("Supervision") and Rule 4511 ("General Requirements").
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $2,800,000 fine and (iii) undertakings that will (a) correct the ongoing confirmation issues and (b) implement a supervisory system reasonably designed to achieve compliance with SEA Rule 10b-10 and FINRA Rule 2232.
Commentary
While the clearest takeaway from this enforcement action is that firms should act immediately to address known deficiencies, it also emphasizes the importance of robust supervision and meaningful review of functions outsourced to third parties. Firms should scrutinize their service providers upon selection and diligently monitor them on an ongoing basis. This is also a reminder that system errors have a knock-on effect of inaccurate or otherwise deficient records, violating Rules 17a-3 ("Records to be made by certain exchange members, brokers and dealers") or 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers").