The Financial Industry Regulatory Authority will collect about $930,000 in fines from about a dozen brokerages for stock and options trading and trade reporting violations, according to the regulator’s February disciplinary actions report.
Most of the fines stem from routine violations of FINRA’s trade reporting requirements, but at least one broker – TD Ameritrade’s Thinkorswim options brokerage — got hit hard for wash sale violations. Reporting violations constituted the single largest category, accounting for about $650,000 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 reporting rules of FINRA’s trade reporting facilities, or TRFs. That came to $475,000. Of that, Merrill Lynch coughed up $265,000, due to violations across more than 8 million trades. In all, five firms were dinged for failing to report entire trades, execution times, the correct symbols, or the correct modifiers.
The second largest category of reporting-related fines stemmed from violations of the rules of FINRA’s Order Audit Trail System, or OATS. That came to $163,500, with six firms sharing the burden. According to FINRA, the firms sent in reports with errors, and in some instances, failed to fix reports that were transmitted in error.
In wash trade violations, options brokerage Thinkorswim, owned by TD Ameritrade, got hit hard, paying FINRA $200,000. The options staff of FINRA’s market regulation department charged that one of the firm’s customers—a non-broker-dealer—entered into thousands of losing one-lot trades on various options exchanges through Thinkorswim. These trades were done to lower the customer’s cancellations-to-executions ratio in order to reduce the possibility of excess cancellation charges, the broker regulator said.
FINRA charged these trades were “potentially violative wash trades executed between the customer’s sub-accounts.” Wash trades are matched orders to buy and sell shares that likely result in minimal change of ownership in the company, may be executed at prices unrelated to market supply and demand, and create the false appearance of market activity in the stock.
FINRA also nailed Neuberger Berman for violations related to wash trades. In Neuberger’s case, however, the regulator found no evidence it facilitated wash trades. It fined the broker $85,000 for not having appropriate written supervisory procedures covering wash trades.
Five firms accounted for the majority of FINRA’s intake in February. They were G1 Execution Services, Knight Capital Group, Merrill Lynch, Neuberger Berman, and Thinkorswim.
