Introducing Broker Settles FINRA Charges for Failing to Report Large Options Positions

FINRA settled charges against an introducing broker for failing to report thousands of large options positions that were held by its clearing firms.

According to the AWC, during the relevant period, the introducing firm lacked any system to identify or report customer options positions held in omnibus accounts at its clearing firms. FINRA said the firm "failed to report 4,192 positions" in 20,067 instances. FINRA found that even after implementing a reporting tool, the firm still failed to report an additional 87 positions because it improperly "deleted expiring option positions from its reports," contrary to OCC guidance requiring firms to report positions through expiration.

FINRA said the firm's written supervisory procedures required a designated options supervisor to be responsible for Large Options Positions Report ("LOPR") reporting but did not specify how often positions should be assessed or reported, and the firm provided no supervisory review to ensure accuracy and completeness. FINRA found that even after implementing a reporting tool, the firm's operating procedures failed to indicate reporting frequency or provide for supervisory review of the reporting process or data accuracy. FINRA noted Regulatory Notice 16-17 as providing guidance on the supervision of option positions as well as the Option Clearing Corporation's FAQ on LOPR.

FINRA found violations of FINRA Rules 2360(b)(5) ("Reporting of Options Positions"), 3110(a) and (b) ("Supervisory Systems" and "Written Procedures"), and 2010 ("Standards of Commercial Honor and Principles of Trade").

As a result, FINRA imposed a censure and a $125,000 fine. Further, the firm must provide within 60 days a certification from a senior management registered principal that it has remediated the identified issues and implemented a supervisory system and written supervisory procedures reasonably designed to achieve compliance with the large options position reporting requirements. FINRA specified that the certification must include a narrative description and supporting exhibits demonstrating remediation and implementation.