Broker-Dealer Settles Charges for Inaccurately Reporting Order Routing Information
A broker-dealer settled FINRA charges for inaccurately reporting information pertaining to the routing of non-directed orders in national market system ("NMS") securities.
In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer published quarterly reports on its website that overreported non-directed customer orders, as well as non-directed customer orders that had been routed to the firm's alternative trading system. FINRA said the reports also improperly excluded the venues used for the transactions. FINRA said the failures were caused by inaccurate information received from a vendor, and inadequate supervisory policies that neither described how reporting audits should be performed, nor that the underlying data be reviewed for accuracy.
FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), FINRA Rule 3110 ("Supervision") and SEC Regulation NMS Rule 606 ("Disclosure of Order Routing Information"). To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $100,000.
Commentary
This enforcement action is a good reminder to firms utilizing vendors for reporting that the ultimate obligation to produce accurate reports remains with firms regardless of outsourcing arrangements. Firms outsourcing regulatory functions to third-party vendors should have robust supervision and review in place to ensure they are receiving accurate data and are satisfying regulatory obligations. While ongoing review of outsourcing arrangements is prudent, this instance could have been avoided by an annual review - a minimum for firms outsourcing reporting functions.