FINRA Fines Firms for Fractional Share and Options Trade Reporting Failures
Two related firms settled FINRA charges for trade reporting and supervisory failures across equity, options, and fractional share transactions.
According to the AWC, during the relevant period, the firms failed to report millions of trades over an extended period, including more than "14 million fractional share liquidations" and over "84,000 error correction transactions," which caused the firms to avoid paying required Section 31 fees. FINRA also found that the firms failed to timely transmit roughly 1.6 million NMS trades and more than 29,000 OTC equity transactions within the ten-second reporting window. FINRA stated that the firms eventually self-reported the issues and implemented remedial measures.
FINRA found that one of the firms failed to report over 59,000 equity and index options position changes to the Large Options Positions Reporting system when positions were added, modified, or deleted on expiration dates. FINRA determined that the firm also failed to report more than 12,000 additional options positions when certain accounts acting in concert were randomly excluded. FINRA stated that both failures stemmed from a 2020 system update and were resolved through later system modifications.
FINRA also found that both firms failed to maintain adequate supervisory systems for reporting fractional share and error correction trades. FINRA noted the firms had no written procedures for these areas and, even after incorporating the trades into reviews, did not update its supervisory procedures.
FINRA determined that the firms violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2360 ("Options"), 3110 ("Supervision"), 6380A and 6622 ("Transaction Reporting").
Both firms terminated their FINRA memberships after a merger with a third firm which acquired all their assets and current and future liabilities.
To settle the charges, the firms agreed to (i) a censure, (ii) pay a $550,000 fine, and (iii) undertakings to pay the regulatory transaction fees associated with the unreported transactions.