Firm Settles FINRA Charges For Failure To Monitor For Manipulative Trading – Finance and Banking

United States of America: Company settles FINRA fee for not monitoring fraudulent trade

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The broker-dealer has settled the FINRA fee for failing to adequately monitor improper trading.

In its Letter of Acceptance, Waiver and Consent (“AWC”), FINRA claimed that the Company’s supervisory regime was not reasonably designed to detect potentially manipulative trading in order to:

  • Wash Trades – The company will determine potential wash sales only if the value of the trade is greater than $1,000, regardless of the price of the underlying security.
  • Pre-arranged trading – the company’s monitoring reports will not detect such trades if both parties to the transaction are executed separately more than 1 second.
  • Marking-the-Close – The company’s monitoring reports were too restrictive to detect closing labeling activity.

FINRA found that the company’s monitoring was not reasonably designed to detect trades that “artificially increased or decreased the price of poorly traded shares” and that its monitoring reports were not reasonably designed to detect potential intra-day manipulation. FINRA has accused the company of violating FINRA rules 3110 (“oversight”) and 2010 (“commercial honor standards”).

To settle the fee, the trading broker has agreed to (1) reprimand, (2) a $350,000 fine, with $144,500 paid to FINRA, and (3) submit a signed and dated letter or email confirming that the firm has implemented a reasonably designed supervisory system to detect trading activity. Manipulative described in AWC.

Primary sources

  1. FINRA AWC: E * TRADE Securities LLC

The content of this article is intended to provide a general guide to the topic. It is recommended to take the advice of specialists in such circumstances.

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