Firm Settles FINRA Charges for TRACE Reporting Violations
Commentary by Steven Lofchie
A firm settled FINRA charges for incorrectly and inadequately reporting Treasury transactions to the Trade Reporting and Compliance Engine ("TRACE").
In a Letter of Acceptance, Waiver, and Consent, FINRA stated that: "the over-reporting occurred when the firm transferred Treasury securities within its internal accounts because the firm unintentionally removed the logic to prevent these internal transfers from being automatically reported." FINRA found that this led to improperly reported Treasury transactions to TRACE in violation of FINRA Rule 6730 ("Transaction Reporting"). Additionally, FINRA found that the firm's "logic" (i) did not automatically code Treasury transactions with an affiliate that were at cost with the required "No Remuneration" indicator and (ii) misreported affiliate transactions as customer transactions.
FINRA determined that the firm also violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 3110 ("Supervision") for failing to establish a supervisory system reasonably designed to ensure compliance with TRACE reporting requirements.
To settle the charges, the firm agreed to a censure and a $275,000 fine.
Commentary
FINRA's practice of treating every violation of a FINRA Rule as being also a Rule 2110 violation should lead to one of two conclusions: Rule 2010 should be deleted as duplicative; or Rule 2010 should be renamed "Violation of a FINRA Rule." That way, it will be clear that any firm that violates another FINRA Rule has also violated Rule 2010.