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December 31, 2019 at 12:52 PM
The Financial Industry Regulatory Authority censured and fined TD Ameritrade $250,000 for violating options-order coding rules and not having a reasonable supervisory system and written supervisory procedures in place to handle such orders.
TD Ameritrade — which is being bought by rival Charles Schwab for $26 billion — declined to comment Tuesday. However, without admitting or denying FINRA’s findings, TD Ameritrade signed a letter of acceptance, waiver and consent on Dec. 9 in which it agreed to the censure and fine over its actions. FINRA accepted the letter Monday.
Between 2010 and April 1, 2015, TD Ameritrade inaccurately coded options orders entered by 10 clients on its Thinkorswim platform as “customer” rather than “professional customer,” according to the regulatory group.
A professional customer origin code is required for all option orders submitted by clients who aren’t broker-dealers and who enter an average of more than 390 options orders a day during any month during the prior quarter, FINRA says.
TD Ameritrade mismarked about 1.5 million options orders that were routed to options exchanges, resulting in the execution of about 500,000 mis-marked options orders. This miscoding resulted in inaccurate order records and potentially allowed those orders to mistakenly be given priority for execution on the options exchanges, which prioritize customer orders over those of professional customers, FINRA said.
As a result, TD Ameritrade violated Section 17(a) of the Securities Exchange Act, Rule 17a-3(a)(6)(i), NASD Rule 3110(a) for conduct that took place prior to Dec. 5, 2011, and FINRA Rules 4511 for conduct on or after Dec. 5, 2011 and 2010, according to FINRA.
