Firm Settles FINRA Charges for Unreported Fractional-Share Trades

A self-clearing broker-dealer settled FINRA charges that it failed to report roughly 2.7 million fractional-share trades over three years.

According to the AWC, during the relevant period, the firm executed the fractional-share portions of customer sell orders in a principal capacity, but did not report those trades to the FINRA/Nasdaq Trade Reporting Facility or the Over-the-Counter Reporting Facility. FINRA said that most of the trades arose when customers liquidated fractional positions built up through the firm's dividend-reinvestment and dollar-cost-averaging programs. The firm began reporting such trades but continued to miss fractional shares it liquidated during customer account transfers, which the relevant transfer system did not support, and the firm did not pay the regulatory transaction fees owed on the trades.

FINRA said the firm also lacked a supervisory system and written procedures reasonably designed to meet its fractional-share reporting obligations.

The firm consented to findings that it violated FINRA Rules 6380A and 6622 ("Transaction Reporting"), FINRA Rules 3110(a) and (b) ("Supervision"), and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

The firm agreed to a censure, a $125,000 fine, and an undertaking to pay the regulatory transaction fees due on the unreported trades.