Most of the fines stem from routine violations of FINRA's trade reporting requirements, but some are due to violations of federal trading rules. Reporting violations constituted the single largest category, accounting for about $635,000 of the total.
The violations occurred during various periods over the past five years as several groups within FINRA's department of market regulation conducted sweeps or routine examinations of firms' books and records.
The largest single category of reporting-related fines stemmed from violations of the rules of FINRA's Order Audit Trail System, or OATS. The second largest was fines stemming from violations of the reporting rules of FINRA's trade reporting facilities, or TRFs. The third largest source of reporting-related fines stemmed from position reporting violations, such as for short interest and options positions.
Fines due to OATS reporting violations have provided FINRA with a steady stream of income over the years. Most of the violations, brokers say, are due to errors, which occur because the systems is overly difficult to use. At least one firm, Lek Securities, successfully sued FINRA in 2007 over charges it violated OATS rules. Afterwards, FINRA chairman and Chief Executive Mary Schapiro vowed to reexamine OATS rules. For more, click here:http://www.tradersmagazine.com/issues/20070516/2806-1.html
In FINRA's January report, it disclosed a laundry list of OATS violations. In general, firms failed to report their "order events" to OATS; reported incorrectly; or didn't format the report properly. Some reports were filed late.
Sometimes, when told they needed to re-report certain events to OATS, the firms simply gave up, and declined to do so. More typically, however, firms submitted the reports on time, but used the wrong codes. Sometimes firms sent in duplicate information. In all cases, the violations represented a small fraction of a firm's overall trade reports.
On the trading front, most violations stemmed from Securities and Exchange Commission short sale rules. FINRA has made auditing brokers for violations of Regulation SHO as well as the SEC's 2008 short sale emergency order a priority since the financial crisis. Reg SHO governs all aspects of short selling, including "naked" short sales in which a broker-dealer fails to locate the security in time.
Firms agreeing to pay fines this month include Goldman Sachs, Deutsche Bank Securities, Morgan Stanley & Co., Jefferies & Co., J.P. Morgan Securities, Moors & Cabot, Nomura Securities International, Natixis Securities Americas, Tejas Securities Group, Wedbush Securities, Timber Hill, Belgium's KBC Securities USA, and Lightspeed Trading
Peter Chapman
