Firm settles FINRA charges for failure to oversee manipulative transactions Finance and banking
United States: Firm pays FINRA charges for failure to monitor manipulative trades
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A broker installed FINRA accuses of not having sufficiently monitored inappropriate transactions.
In an Acceptance, Waiver, and Consent (“AWC”) letter, FINRA alleged that the firm’s monitoring system was not reasonably designed to detect possible manipulative trading regarding:
- Wash Trades – The company would only flag potential wash trades if the value of the trade was greater than $1,000, regardless of the price of the underlying security.
- Prearranged Trading – Company monitoring reports would not detect such trades if the two sides of the trade were executed more than one second apart.
- Fence Tagging – Company monitoring reports were too restrictive to detect fence tagging activity.
FINRA found that the firm’s monitoring was not reasonably designed to detect transactions that “artificially raise or lower the price of thinly traded stocks” and that its monitoring reports were not reasonably designed to detect possible intraday manipulative transactions. FINRA accused the company of violating FINRA rules 3110 (“Monitoring”) and 2010 (“Commercial Honor Standards”).
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a fine of $350,000, of which $144,500 was payable to FINRA, and (iii) to submit a signed letter or email and dated confirming that the firm has implemented a monitoring system reasonably designed to detect the manipulative trading activity described in the AWC.
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