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FINRA fines BofA Securities $5 million over reporting failures on options positions

On Behalf of | Sep 28, 2022 | Regulatory Investigations

The Financial Industry Regulatory Authority announced it has fined Bank of America’s brokerage division over its failures in reporting over-the-counter options positions.

BofA Securities Inc. (BofAS), based in New York City, was fined $5 million after FINRA said it failed to report OTC options to the Large Options Position Reporting System (LOPR) more than 7.4 million times between January 2009 and October 2020. 26 of the unreported positions were also over the applicable OTC position limit of either 25,000 or 50,000 contracts, the authority said.

Because of the reporting failures, BofAS was found to be in violation of FINRA Rule 2360, requiring member firms to report large options positions to the LOPR, and Rule 2010, requiring firms to observe high standards of commercial honor and just and equitable principles of trade.

FINRA also found that from January 2014 to October 2020, BofAS’s supervisory system was not reasonably designed to comply with its LOPR reporting obligations, including a lack of effective measures to detect whether there were positions that should have been reported to the system but were not reported. These deficiencies resulted in violations of Rule 2010 as well as Rule 3110, which requires firms to establish and maintain supervisory systems reasonably designed to achieve compliance with FINRA regulations.

“FINRA relies on accurate reporting of transactions in order to maintain the integrity of the markets,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement. “BofAS’s failure to report millions of OTC options positions prevented FINRA from carrying out that core function for transactions that carry substantial risks.”

FINRA said it uses the LOPR to watch for potentially manipulative behavior, including attempts to corner the market in the underlying equity, leverage an option position to affect the price, or move the underlying equity to change the value of a large option position.

BofAS did not admit or deny the charges, but did consent to the entry of FINRA’s findings. Along with the financial penalty, the firm agreed to a censure and a stipulation that it will establish and maintain supervisory procedures to comply with Rule 2360 by October 31.

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