"Market Center" Settles FINRA Charges for Inaccurate Order Execution Reports

A firm operating as a "market center" (defined under Regulation NMS as "any exchange market maker, OTC market maker, alternative trading system, national securities exchange, or national securities association") settled FINRA charges for under-reporting "covered orders" in contravention of SEC Regulation NMS Rule 605 ("Disclosure of Order Execution Information").

In a Letter of Acceptance, Waiver, and Consent, FINRA found that the market center erroneously classified certain transactions as subject to "special handling" and thus not reportable under the Rule 605 definition of "covered orders" (i.e. in relevant part - "any market order or any limit order (including immediate-or-cancel orders) received by a market center during regular trading hours at a time when a national best bid and national best offer is being disseminated.")

In addition, due to a logic error in report-generating software, FINRA found that the firm inaccurately labeled certain transactions as marketable limit orders instead of inside-the-quote limit orders.

FINRA determined that the firm violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110 ("Supervision") and SEC Regulation NMS Rule 605. To settle the charges, the firm agreed to (i) a censure and (ii) a civil monetary penalty of $165,000.