A firm and its general securities principal settled FINRA charges for (i) failing to maintain a reasonable supervisory system that detects potentially manipulative trading and (ii) failing to review and retain business-related text messages.
In a Letter of Acceptance, Waiver, and Consent, FINRA found that the firm did not train or provide guidance to branch managers on how to (i) identify and consider the timing, pricing and circumstances of matched trades, (ii) review for patterns of potentially manipulative trading over time and (iii) escalate potentially manipulative activity. The firm also did not have exception reports that would help branch managers detect potential matched trades, cross trades or other potential market manipulation. FINRA found that the manual review by branch managers was not reasonably designed as it (i) spanned multiple days and (ii) tasked the reviewers with looking at activity only in their respective branches, meaning no one was reviewing for potential manipulative activity across the firm's branches. As a result, the firm violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").
In addition, FINRA found that the firm's personnel, including the general securities principal who supervised them, routinely communicated about firm business by text message over personal mobile phones. FINRA stated that the firm's personnel never sent these business-related electronic communications to their supervisors or to the firm's compliance department to be reviewed and retained. As a result, the firm violated Section 17(a) of the Exchange Act, SEA Rule 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers") and FINRA Rules 4511 ("General Requirements") and 2010, and the principal violated FINRA Rules 4511 and 2010.
To settle the charges, (i) the firm agreed to a censure, a $1.5 million fine and to certify that it has enhanced its supervisory system and (ii) the principal agreed to a two-month suspension and a $15,000 fine.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.