Among recent enforcement actions, the Financial Industry Regulatory Authority fined Barclays Capital Inc. $1.3 million for what it said were “systemic” failures to enter correct information into its Order Audit Trail System.
In addition, Instinet found itself in FINRA’s sights in two separate instances, over disclosure failures and its own OATS reporting issue, and Purshe Kaplan Sterling Investments was censured and fined for due diligence failures relating to its registered representatives’ outside business activities.
Barclays Capital Fined $1.3 Million on OATS, Supervisory Failures
FINRA has fined Barclays Capital Inc. $1.3 million for what it described as systemic Order Audit Trail System (OATS) reporting violations and related supervisory failures.
According to the agency, its rules require the complete and accurate transmission of data by firms to OATS that relates to events in the lifecycle of an order, called Reportable Order Events (ROEs). However, FINRA found 15 system issues at Barclays Capital that gave rise to OATS reporting violations.
Barclays Capital transmitted more than 3 billion inaccurate or incomplete ROEs to OATS, including omitted special handling codes; inaccurate timestamps, execution quantities and member type codes; and duplicate or erroneous reports. In addition, Barclays Capital failed to transmit millions of ROEs to OATS. FINRA also found that Barclays Capital’s supervisory system was not up to the task of achieving compliance with its OATS reporting obligations.
In settling with FINRA, Barclays Capital neither admitted nor denied the charges but consented to the entry of FINRA’s findings.
Instinet Censured, Fined by FINRA in Two Instances
Instinet LLC, an online security brokerage and electronic trading service, was censured and fined by FINRA in two separate instances, the first involving disclosure failures and the second OATS reporting.
In the first, the firm was fined $115,000 and required to revise its policies and procedures, including written supervisory procedures, after FINRA found that it failed to properly disclose that on some occasions, it acted in a principal trading capacity in its alternative trading systems (ATSs) when processing errors.
FINRA found that Instinet failed to generally disclose on new account documentation provided to entities that traded in the firm’s ATSs, the firm’s website, and other marketing materials that, on occasion, it may trade within its ATSs in a principal capacity when processing errors. Instead, as was indicated on its website and marketing materials, the firm described itself as trading “agency only liquidity.”
FINRA also found that that the firm issued trade confirmations that incorrectly reflected its trading capacity as an agent instead of as principal. When the firm issued trade confirmations to customers for whom it had corrected errors, and to customers with whom it subsequently traded within one of its ATSs to flatten out a position that it acquired to handle an error, the firm was required to indicate that it acted in a principal capacity. In addition, FINRA found that the firm’s supervisory system wasn’t up to the task of achieving compliance regarding disclosure of acting as a principal or in ensuring the accuracy of trade confirmations that reflected its principal trading capacity.
In the second, the firm was censured and fined $12,500 after FINRA found that it improperly reported Execution or Combined Order Execution Reports to OATS with a Reporting Exception Code of “M” that were required to match a related trade report in FINRA’s trade reporting system.
In each case, the firm neither admitted nor denied the findings, but consented to the sanctions.
FINRA Fines, Censures Purshe Kaplan Sterling Over Reps’ Outside Activities
Purshe Kaplan Sterling Investments Inc., a broker-dealer, was censured by FINRA and fined $200,000 for due diligence failures relating to its registered representatives’ outside business activities. In addition, the firm must submit a written plan for how it will review its relevant policies and procedures.
According to the agency, that the firm, in approving the outside business activities of its registered representatives, neither obtained nor reviewed information such as sample client advisory agreements, compensation received for investment advisory services and other information that would have allowed it to determine whether these activities involved private securities transactions.
FINRA also said that the firm’s supervisory system was not adequate to review performance reports used by its registered representatives in connection with outside brokerage services. The firm’s written procedures concerning performance reports had no provisions for supervisory review of the reports’ contents, and the firm conducted no supervisory reviews of the performance reports its registered representatives used.
The firm neither admitted nor denied the findings but consented to the sanctions.
— Check out FINRA Reminds BDs of Arbitration Rights for Clients, Reps on ThinkAdvisor.