A broker-dealer settled FINRA charges for failing to monitor sufficiently for improper trading.
In a Letter of Acceptance, Waiver and Consent ("AWC"), FINRA alleged that the firm's supervisory system was not reasonably designed to detect possible manipulative trading as to:
- Wash Trades - The firm would flag potential wash sales only if the trade value were greater than $1,000, regardless of the underlying security's price.
- Prearranged Trading - The firm's surveillance reports would not detect such trades if both sides of the transaction were executed more than one second apart.
- Marking-the-Close - The firm's surveillance reports were too restrictive to detect marking-the-close activity.
FINRA found that the firm's surveillance was not reasonably designed to detect trading that "artificially increased or decreased the price of thinly traded stocks" and that its surveillance reports were not reasonably designed to detect possible intraday manipulative trading. FINRA charged that the firm violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor").
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $350,000 fine, with $144,500 payable to FINRA, and (iii) submit a signed and dated letter or e-mail affirming that the firm has implemented a reasonably designed supervisory system to detect the manipulative trading activity described in the AWC.
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