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Broker-Dealer Ignored Information Barriers for Issuer Share Repurchases

 The SEC fined a broker-dealer $1.25 Million for failing to respect required information barriers, thereby allowing the sharing of material nonpublic share buyback information with customers.  The SEC alleges that the trading desk that executed issuer share repurchase trades shared order data with another desk that disclosed the information to customers.  The head traders of the two desks shared trading intelligence including access to the order management system.  The SEC maintains that the information was material to an investment decision because third party customers could use the trade orders as indications of the financial health of the underlying issuer.   The SEC charges the firm with violating its own policies on information barriers.

OUR TAKE: It appears that the firm failed to implement a monitoring system to ensure that the trading desks observed information barriers.  How firms ensure the protection of material nonpublic information should be part of the annual testing program.


BD Smacked with $1.5 Million Fine for Failing to Properly Maintain Electronic Trading Records


FINRA fined a large broker-dealer $1.5 Million for failing to properly maintain electronic brokerage records.  According to FINRA, the respondent’s ATS business failed to maintain over 100 million trading records in “write once, read only” (WORM) format over a 6-year period.  FINRA also faults the BD for failing to maintain duplicate copies of over 300 million orders placed over the same period.  The failures also resulted in charges that the firm did not have adequate audit or compliance procedures.  FINRA said the required records and formats are necessary for regulatory examinations and internal audits.

OUR TAKE: The IT folks must connect with the compi-pros to understand the specific regulatory requirements for electronic data retention.  Then, the compli-pros must determine how to implement effective audit and compliance surveillance.  The most dangerous phrase in financial services: “That’s not my job.”