FINRA Fines Firm for CAT Trade Reporting Failures

A firm settled FINRA charges for failing to accurately report data to the Consolidated Audit Trail ("CAT") Central Repository, and for related supervisory, trade reporting and recordkeeping failures.

According to the AWC, the firm failed to accurately report "approximately 36.6 billion equity order events" to the CAT. FINRA found that the flawed reports were the result of an "inaccurate data field" caused by "coding errors" in the firm's reporting system. FINRA said that the firm experienced six distinct CAT reporting errors, two of which accounted for the majority of the inaccurate submissions. 

FINRA found that the firm reconfigured its "market access gateway" to automatically mark all client orders as agency— a change intended to "accurately reflect [the firm's] role as agent," but which "inadvertently caused" principal orders entered by firm traders to be misclassified. FINRA said the misconfiguration resulted in the reporting of 6,892,138 trades with "inaccurate capacity" to the FINRA/Nasdaq Trade Reporting Facility and the OTC Trade Reporting Facility. FINRA also found that the firm reported 98,322 principal trades that should not have been reported because they "did not involve a change in beneficial ownership." 

FINRA determined that, as a result of a "reconfiguration of the firm's gateway," the firm created and retained "90,766,943 inaccurate order memoranda," which incorrectly reflected the orders as agency orders rather than principal orders. FINRA also stated that, during the same period, the firm issued at least 372,260 customer confirmations "with an inaccurate capacity," marking them principal instead of agency.

FINRA found that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2232 ("Customer Confirmations"), 3110 ("Supervision"), 4511 ("General Requirements"), 6830 ("Industry Member Data Reporting"), 6893 ("Timely, Accurate, and Complete Data"), 7230 ("Trade Report Input"), 7330 ("Trade Report Input"), 6380 ("Transaction Reporting") and 6622 ("Transaction Reporting"); Exchange Act Section 17(a) ("Records and Reports"); and Exchange Act Rules 17a-3 ("Records to be made by certain exchange members, brokers and dealers") and 10b-10 ("Confirmation of transactions"). 

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $1.45 million fine.