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A broker-dealer settled FINRA charges for publishing inaccurate order execution information in monthly reports in violation of Regulation NMS Rule 605 ("Disclosure of order execution information").
FINRA found that the inaccuracies were the result of several system flaws, including those related to (i) the broker-dealer's statistical reporting of subscriber-initiated cancellations for unexecuted shares of partially executed orders, and (ii) "multiple partial executions for a single parent order." FINRA also charged the broker-dealer with violations of FINRA Rule 3110 ("Supervision"), as well as FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), by failing to establish and maintain a supervisory system and written supervisory procedures reasonably designed for the broker-dealer to be compliant with Regulation NMS Rule 605.
To settle the charges, the broker-dealer agreed to a (i) censure and (ii) $125,000 fine ($75,000 for violations of NMS Rule 605 and FINRA Rule 2010, and the remaining $50,000 for violations of NASD Rule 3010 and FINRA Rules 3110 and 2010).
Commentary
FINRA Rule 2010, as to just and equitable principles of trade, has lost all meaning. Every violation of any SEC or FINRA Rule has become an independent violation of FINRA Rule 2010, as well as likely a supervisory violation. FINRA should charge Rule 2010 only when a broker-dealer has done something clearly wrong as to which no other rule applies. Otherwise, Rule 2010 should just have its name changed to "Prohibition on Breaking Any Other Rule." That way, whenever a firm did break some other rule, the violation of Rule 2010 would be open and shut.
Originally published 19 May 2020
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