FINRA Fines Firm for TRACE Reporting Failures
A firm settled FINRA charges for failing to report TRACE-eligible bond trades and for lacking adequate supervisory systems to ensure compliance with trade reporting obligations.
According to the AWC, the firm did not report approximately 19,160 interdealer fixed income transactions executed during the relevant period. FINRA said the firm mistakenly believed these trades with another member firm were not reportable as interdealer trades because they were made under a "Delivery versus Payment (DVP)/Receive versus Payment (RVP) account." FINRA found that even after the firms moved to using a principal account, the firm continued to fail to report the transactions to TRACE.
FINRA also found that during the relevant period, the firm inaccurately reported the capacity on roughly 2,690 transactions with two other member firms, incorrectly marking itself as an agent when it had acted as principal. FINRA said these misreports were caused by a flawed automated rule in the firm's clearing process, which altered the capacity despite trade messages showing principal execution. The firm did not correct the error in a timely manner and then only after a FINRA inquiry.
FINRA found that the firm had no procedures or surveillance to detect unreported trades or to verify the accuracy of trade details such as capacity. According to FINRA, the firm's WSPs lacked any guidance for detecting these issues, and no related reviews were conducted.
FINRA also referenced a prior disciplinary action against the firm for separate municipal securities reporting violations, including failures to report trades to the MSRB's RTRS system and inadequate supervision. That action resulted in a $275,000 fine and $750,746 in disgorgement. (See related coverage.)
FINRA concluded that the firm violated FINRA Rules 6730 ("Transaction Reporting"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision") and NASD Rule 3010 ("Supervision").
To settle the charges, the firm agreed to (i) a censure and (ii) a $125,000 fine.