FINRA Suspends Broker for Mismarking Positions

FINRA suspended a broker for intentionally mismarking trading positions to create the appearance of profitability.

According to the AWC, the broker was a trader on a firm's US Repurchase Agreements Desk, where he traded repurchase agreements, including forward start reverse repurchase agreements. FINRA stated that the broker was responsible for marking positions to market in an internal system used to value trades and calculate profit and loss. FINRA found that the broker entered into "six forward start reverse repurchase positions" with similar terms but "different contractual interest rates," whose value "depended on market expectations for interest rates" over their term.

FINRA determined that the broker entered marks for the six positions that he "knew did not reflect market expectations" in an effort to make them appear "more profitable" than they were. FINRA highlighted that the broker continued mismarking the positions for five months, ultimately disclosing to his supervisor "the full scope of his mismarking." FINRA stated that the brokers mismarking of the positions "concealed unrealized losses of over $15 million."

FINRA determined that the broker violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

The broker consented to (i) a four-month suspension from associating with any FINRA member in all capacities and (ii) a $5,000 fine.