FINRA Fines Firm for Inaccurate TRACE Reporting
Commentary by Steven Lofchie
A firm settled FINRA charges for failing to include required indicators in TRACE reports.
According to the AWC, the firm failed to apply the required No Remuneration ("NR") indicator on approximately 108,000 TRACE reports for transactions executed without a mark-up, mark-down, or commission. FINRA found that the firm executed offsetting transactions with both a customer and a non-member affiliate at the same price, but incorrectly determined that the NR indicator was not required. FINRA explained that because the firm did not receive remuneration for the non-member affiliate trades, it was obligated to include the NR indicator in its TRACE reports.
FINRA noted that the firm remediated the issue after being alerted to the requirement and subsequently began correctly including the NR indicator on applicable TRACE reports.
FINRA concluded that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 6730 ("Transaction Reporting").
To settle the charges, the firm agreed to (i) a censure and (ii) a $70,000 fine.
Commentary
Penalty amounts are an area in need of examination, particularly when combined with the complexity of trade reporting.
Or perhaps if FINRA could explain why the collected data is important, or how FINRA makes use of the data, that would help explain the penalty amount. It would also make the rules more comprehensible, if one understood the uses that were made of the data.