Broker-Dealer Fined for Mismarking Trades

A general securities firm settled FINRA charges for mismarking orders.

In a Letter of Acceptance, Waiver and Consent, FINRA stated that the firm did not include two proprietary accounts when calculating the firm’s net overall position in equity securities because it separated the accounts into independent trading units (aggregation units). FINRA found that the firm failed to create a written plan that (i) identified the aggregation units, (ii) specified their trading objectives and (iii) supported their independent identities, as required under Regulation SHO which provides that firms must mark their sell orders as "short," "long," or "short exempt" based on their net position. FINRA concluded that the firm's order management system "incorrectly excluded their positions when calculating the firm’s net position in securities, resulting in the firm mismarking trades." FINRA also found that the firm lacked a supervisory system to ensure regulatory compliance during the review period.

As a result, FINRA determined the firm violated Regulation SHO Rules 200(f)(1) and 200(g) ("Definition of 'short sale' and marking requirements"), FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade") and NASD Rule 3010.

To settle the charges, the firm agreed to a censure and $50,000 fine.