Firm Fined for Inaccurate TRACE Reporting
Commentary by Mark Highman
A firm settled charges with FINRA for failing to correctly report trade information related to municipal and TRACE-eligible securities.
According to the AWC, FINRA found that the firm failed to report approximately 23,000 municipal securities transactions to the MSRB's Real-Time Transaction Reporting System ("RTRS") without including the required Non-Transaction Based Compensation ("NTBC") indicator. FINRA found that the firm also failed to report the No Remuneration ("NR") indicator for approximately 155,000 TRACE-eligible securities transactions. FINRA said that these omissions occurred because the firm's systems did not account for internal affiliate transactions where no commission or markup was charged.
FINRA determined that the firm violated FINRA Rules 6730 ("Transaction Reporting"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade") and MSRB Rules G-14 ("Reports of Sales or Purchases") and G-27 ("Supervision").
To settle the charges, the firm agreed to a (i) censure and (ii) $150,000 fine, $42,000 of which pertained to the MSRB violations.
Commentary
FINRA continues to bring enforcement actions against broker-dealers for failure to include the "No Remuneration" indicator in TRACE reports, where required. In light of the regulatory focus on TRACE reports, firms should review their TRACE reporting systems and procedures to check that they are including required indicators. In this case, the firm failed to include the required no remuneration indicators on TRACE and MSRB reports for transactions with affiliates.
In addition, this case illustrates the importance of implementing appropriate supervision of TRACE reporting systems. FINRA noted that the firm improved its TRACE supervision by implementing a random sample of trades on a monthly basis to confirm the accuracy of TRACE reports, including the use of required no remuneration indicators.