Broker-Dealer Fined for Incorrectly Reporting Internal Transfers
Commentary by Steven Lofchie
A broker-dealer settled charges with FINRA for failing to timely report trades and for incorrectly reporting internal transfers as "securitized products transactions" to the Trade Reporting and Compliance Engine ("TRACE") and to the MSRB's Real-time Transaction Reporting System ("RTRS").
In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer did not timely report approximately 640 trades to TRACE and approximately 225 trades to the MSRB's RTRS. Additionally, FINRA determined that the broker-dealer incorrectly reported approximately 130 internal transfers to TRACE and approximately 3,250 internal transfers to the RTRS as securitized products transactions when they were not reportable. FINRA concluded that the broker-dealer 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 broker-dealer agreed to a (i) censure and (ii) $100,000 fine, $60,000 of which pertains to the MSRB violations.
Commentary
It is unlikely that the firm was maliciously reporting securitized transactions to TRACE that were not required to be reported. The trade reporting rules have gotten to be so complicated that firms struggle to understand what is required. Rather than imposing significant fines, FINRA should view most violations as opportunities to explain what the firm misunderstood and to clarify the relevant rules.