Firm Settles Charges for Inaccurate Trade Confirmations
Commentary by Glen Barrentine
A firm settled FINRA charges for inaccurate or incomplete transaction confirmations.
According to the AWC, the firm prepared over 300,000 institutional customer confirmations containing inaccurate or incomplete information; these confirmations covered a period of approximately five years and included deficiencies of which FINRA had previously notified the firm. FINRA said that, among other deficiencies, the firm (i) failed to correctly identify transactions as having been executed at a single versus an average price; (ii) erroneously stated that a commission equivalent or mark-up/mark-down had been charged on trades even though the firm only charged a commission; and (iii) when it acted as agent for the transactions, failed to provide information regarding the remuneration it received on approximately 160,000 confirmations (i.e. the confirmations listed a fee labeled as "AA Fee" with no further explanation of the fee or disclosure that the firm received it as remuneration from the customer.)
FINRA further found that the firm implemented a review of a sample of customer confirmations in response to FINRA’s prior warning, but did not memorialize that review in its WSPs. FINRA said the firm failed to investigate red flags during review and then stopped performing the sampling review, due to a coding issue, and only realized it had stopped performing the review during another FINRA cycle examination. FINRA found that the firm's WSPs regarding customer confirmations were not reasonable, because they did not include any supervisory review for accuracy of customer confirmations.
FINRA determined that the firm violated Exchange Act Rule 10b-10 ("Confirmation of Transactions"), Exchange Act Section 17(a) and Rule 17a-3 ("Records and reports"), FINRA Rules 2232 ("Customer Confirmations"), 4511 ("General requirements"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure and (ii) pay a $250,000 fine.
Commentary
This matter reflects the importance of firms’ following up on deficiencies identified by FINRA as well as the importance of having reasonable oversight of such follow up activities. Here the firm, after receiving FINRA’s initial notice, began to implement a fix, but failed to continue its efforts due to a coding issue. Had the firm assigned someone the task to ensure that the corrective efforts were either continued or completed, it is likely that the firm could have avoided this matter.