The Financial Industry Regulatory
Authority (FINRA) has slammed a $100,000 fine on Dealerweb Inc., operator of an
electronic interdealer platform for mortgage-backed securities.
The self-regulatory organization said
Dealerweb inaccurately reported approximately 180,000 transactions in
TRACE-eligible securities to its Trade Reporting and Compliance Engine (TRACE)
between July 2016 and December 2020.
FINRA, which supervises brokerage firms in the United States, added that Dealerweb reported these transactions without
including the ‘No Remuneration (NR)’ indicator when in fact they were qualified
for the tag.
The electronic marketplace operator’s
supervisory system was also not reasonably
designed between July 2016 and March 2022 to report TRACE-compliant securities
transactions, the watchdog said.
FINRA disclosed these
in an Acceptance, Waiver, and Consent (AWC) agreement signed by Dealerweb on
October 3 and accepted by the market supervisor on October 17.
More Details
According to FINRA, Dealerweb operated an
alternative trading system (ATS) and a voice interdealer trading desk between
July 2016 and December 2020.
The regulator explained that the
electronic marketplace operator’s customers paid a non-transaction-based
subscription fee to trade on the ATS or trading desk.
This meant that the price of the
transactions on the ATS or trading desk did not include a commission, mark-up,
or mark-down, FINRA noted.
FINRA further explained, “Because the
majority of Dealerweb’s subscribers were other broker-dealers, most of the
firm’s transactions were subject to the inter-dealer exception to the NR
indicator requirement.
“In approximately 180,000 transactions
with non-broker-dealer (e.g., bank) customers, however, Dealerweb was required,
but failed, to report the transactions using the NR indicator.”
On the supervisory system failure, FINRA
noted that although Dealerweb performed supervisory reviews of its TRACE reporting
to identify late reported transactions, its supervision fell short.
Dealerweb’s supervision “was not
reasonable because it did not have a process to check the accuracy of
transaction information reported, including the NR indicator and other modifiers
and indicators required by FINRA Rule 6730(d)(4)”.
FINRA added that Dealerweb’s signature of the
AWC form means it has agreed to its sanctions including the $100,000 fine.
Background details in the agreement shows that Dealerweb paid $37,500 to FINRA for various TRACE violations
between September 2013 and October 2017.
FINRA and UBS
Meanwhile, earlier this month, FINRA slapped a $2.5 million fine on UBS Securities for executing 73,000 ‘naked’ short
sales between 2009 and 2018.
The watchdog said the New York-based brokerage arm of Swiss banking group, UBS, violated
Rule 204 of the US Securities and Exchange Commission’s Regulation SHO (Reg
SHO).
Reg SHO regulates the practice of short
sales or the sale of borrowed securities in the United States. The set of rules
were introduced in 2005.
The Financial Industry Regulatory
Authority (FINRA) has slammed a $100,000 fine on Dealerweb Inc., operator of an
electronic interdealer platform for mortgage-backed securities.
The self-regulatory organization said
Dealerweb inaccurately reported approximately 180,000 transactions in
TRACE-eligible securities to its Trade Reporting and Compliance Engine (TRACE)
between July 2016 and December 2020.
FINRA, which supervises brokerage firms in the United States, added that Dealerweb reported these transactions without
including the ‘No Remuneration (NR)’ indicator when in fact they were qualified
for the tag.
The electronic marketplace operator’s
supervisory system was also not reasonably
designed between July 2016 and March 2022 to report TRACE-compliant securities
transactions, the watchdog said.
FINRA disclosed these
in an Acceptance, Waiver, and Consent (AWC) agreement signed by Dealerweb on
October 3 and accepted by the market supervisor on October 17.
More Details
According to FINRA, Dealerweb operated an
alternative trading system (ATS) and a voice interdealer trading desk between
July 2016 and December 2020.
The regulator explained that the
electronic marketplace operator’s customers paid a non-transaction-based
subscription fee to trade on the ATS or trading desk.
This meant that the price of the
transactions on the ATS or trading desk did not include a commission, mark-up,
or mark-down, FINRA noted.
FINRA further explained, “Because the
majority of Dealerweb’s subscribers were other broker-dealers, most of the
firm’s transactions were subject to the inter-dealer exception to the NR
indicator requirement.
“In approximately 180,000 transactions
with non-broker-dealer (e.g., bank) customers, however, Dealerweb was required,
but failed, to report the transactions using the NR indicator.”
On the supervisory system failure, FINRA
noted that although Dealerweb performed supervisory reviews of its TRACE reporting
to identify late reported transactions, its supervision fell short.
Dealerweb’s supervision “was not
reasonable because it did not have a process to check the accuracy of
transaction information reported, including the NR indicator and other modifiers
and indicators required by FINRA Rule 6730(d)(4)”.
FINRA added that Dealerweb’s signature of the
AWC form means it has agreed to its sanctions including the $100,000 fine.
Background details in the agreement shows that Dealerweb paid $37,500 to FINRA for various TRACE violations
between September 2013 and October 2017.
FINRA and UBS
Meanwhile, earlier this month, FINRA slapped a $2.5 million fine on UBS Securities for executing 73,000 ‘naked’ short
sales between 2009 and 2018.
The watchdog said the New York-based brokerage arm of Swiss banking group, UBS, violated
Rule 204 of the US Securities and Exchange Commission’s Regulation SHO (Reg
SHO).
Reg SHO regulates the practice of short
sales or the sale of borrowed securities in the United States. The set of rules
were introduced in 2005.
