Firm Settles FINRA Charges for TRACE Reporting Violations
Commentary by Steven Lofchie and Mark Highman
A firm settled FINRA charges for failing to include the required "No Remuneration" ("NR") indicator on approximately 50,000 TRACE reports.
According to the AWC, the firm failed to include the NR indicator as required for transactions executed without a commission, mark-up, or mark-down. FINRA found that the firm relied on reviewing order information and rejection notices, which did not detect errors related to the required indicators. FINRA found that the firm remediated its failure to include the NR indicator on its TRACE reports by updating its trade reporting software.
FINRA charged the firm with violations of FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision") and 6730 ("Transaction Reporting").
To settle the charges, the firm agreed to (i) a censure, (ii) pay a $175,000 fine and (iii) an undertaking to remediate the issues identified and implement a supervisory system.
Commentary
The TRACE reporting rules have turned out to be complicated and difficult to implement. Many broker-dealers (and law firms) struggle with their interpretation. Rather than imposing fines, FINRA should use incidents of violations as teaching moments to explain in detail what the relevant firm did wrong.
Commentary
This is the second FINRA settlement this month for failure to include a required "No Remuneration" indicator on TRACE reports. (See previous coverage.) In light of FINRA's focus on this issue, firms should review the requirements of FINRA Rule 6730(d)(1)(A) and FINRA Rule 6730(d)(4)(F), as well as related TRACE Reporting FAQs, which explain the circumstances in which TRACE reports should include the No Remuneration indicator.
In addition, the settlement emphasizes the importance of conducting supervisory reviews of TRACE reports. Unchecked reliance on reporting systems puts firms at risk of submitting multiple erroneous reports and resultant enforcement action.