Firm Settles Charges for TRACE Reporting Violations
Commentary by Glen Barrentine
A firm settled FINRA charges for "inaccurately report[ing] transactions in TRACE-Eligible Securities without the required 'No Remuneration' ("NR") indicator."
According to the AWC, the firm transitioned to a new TRACE reporting system and "failed to include the NR indicator in TRACE reports for approximately 183,000 transactions executed without a mark-up, mark-down, or commission." According to FINRA, "the NR indicator is part of publicly disseminated TRACE transaction data that identifies those trades where no commission, mark-up, or mark-down was charged or known when reported. A failure to accurately report the NR indicator affects the audit trail and regulatory surveillance patterns." FINRA stated that it alerted the firm, and that the firm remediated the issue in 2023.
FINRA also found that the firm "lacked any supervisory system or written procedures to supervise the use of the NR indicator when reporting trades to TRACE," and that the firm failed to perform "any review of its use of the NR indicator in its TRACE reports." According to FINRA, the firm later amended its WSPs to require a supervisory review for the accuracy of the NR indicator when reporting trades to TRACE.
FINRA found that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision") and 6730(d) ("Transaction Reporting").
To settle the charges, the firm agreed to (i) a censure and (ii) pay a $75,000 fine.
Commentary
The AWC highlights the importance of member firms having supervisory procedures relating to changes in technology routines.
A planned change in a technology routine, whether as a result of new equipment, changes in software or both, should trigger an evaluation of whether the change relates to, or may affect, a regulatory requirement, including, as in the AWC, a trade reporting requirement. That evaluation should be documented. Firms may want to have that evaluation reviewed and approved, particularly where the evaluation relates to areas subject to significant regulatory concerns such as trading and trade reporting. Where the technology routine relates to regulatory requirements, the change should be tested before it is implemented in a live environment. The testing process should also be documented and reviewed and approved.