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.
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.