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FINRA fines Instinet $3.8 million over reporting violations

On Behalf of | Aug 22, 2023 | FINRA Compliance

The Financial Industry Regulatory Authority reached a $3.8 million settlement with Instinet over reporting deficiencies, Law360 reports.

According to FINRA, the company made inaccurate or late reports for tens of billions of orders to the consolidated audit trail (CAT) central repository.  Under requirements taking effect in June 2020, large industry members that originated or received an order involving national market system or over-the-counter equity securities had to report related data to the CAT repository.

It was determined that Instinet, a brokerage firm subsidiary of Nomura Group, did not meet the compliance deadline.

From the start of its CAT reporting obligation through the present, Instinet failed to timely and accurately report data for tens of billions of order events to the repository in violation of FINRA Rules 6830, 6893, and 2010, according to the settlement. The firm also failed to establish and maintain a supervisory system reasonably designed to achieve compliance with CAT reporting rules in violation of FINRA Rules 3110 and 2010.

Instinet notified FINRA it anticipated it would experience CAT reporting issues, FINRA said. The firm had retained a third party to act as its reporting agent but failed in establishing technical specifications for its order data, hindering the third party’s ability to convert the data into a format that could be used for CAT reporting.

“By January 2023, Instinet identified approximately 180 different types of CAT reporting errors, including inaccurate share quantity, handling instructions, department type codes, customer display instruction flags, and event timestamps,” FINRA said. These errors contributed to the inaccurate reporting of 32 billion order events related to special handling codes to the CAT repository.  It was also found that Instinet did not reasonably respond to red flags of significant problems with the accuracy of the CAT reports.

Along with the fine, Instinet consented to retaining an independent consultant to conduct a review of its CAT reporting procedures.  The firm did not admit or deny FINRA’s findings.

FINRA uses CAT data to detect manipulative activity and other potential violations of federal securities laws and regulations.

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