FINRA Issues Multimillion-Dollar Fine for OATS and Trade Reporting Failures (with Lofchie Comment)

FINRA fined a firm for systemic Order Audit Trail System ("OATS") reporting violations that spanned a period of several years. In addition, the firm was fined for failure to submit accurate trade reports to the appropriate FINRA Trade Reporting Facility and related supervisory failures.

Although the firm's trading systems captured order event times in milliseconds, FINRA stated, the firm still failed to report order event timestamps in milliseconds for a 10-month period. FINRA reported that the firm submitted a large number of inaccurate, incomplete or improperly formatted trade reports that did not report execution timestamps in milliseconds. FINRA also noted that the firm did not have adequate systems and controls in place to detect and prevent the violations during the review period.

Lofchie Comment: There are a couple of points to note regarding this disciplinary action. Although it concludes that the firm broke the above-mentioned rules by failing to report the relevant information in milliseconds when it had that information available, the disciplinary action also suggests strongly that no other firm was reporting information at this level of detail. Thus, if the additional information had been reported to FINRA, it likely would have been useless, since the additional trade-time information could not have been compared against the trade times of other firms. Second, the number of individual violations in this case was significant. As a result, FINRA may have the authority to impose even more exorbitant fines beyond the penalty imposed here. This suggests that FINRA's parameters for calculating penalties relating to trade reporting violations should be revisited. In short, there should be a reasonable cap on the penalty that may be imposed for any set of non-fraudulent violations; we should not have a legal system in which penalties for infractions of this type are potentially infinite.

See: FINRA Enforcement Press Release; Investment Management Firm's Letter of Acceptance, Waiver, and Consent.Related news: FINRA Issues Proposal Regarding Exemptions from OATS Recording and Reporting Requirements (Fed. Reg.) (June 17, 2015).