Between October 1, 2014, and April 4, 2018, the firm submitted approximately 6.6 million inaccurate or incomplete Reportable Order Events (ROEs) to OATS.
Broker-dealer Janney Montgomery Scott LLC has agreed to pay a $90,000 fine as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).
Between October 1, 2014, and April 4, 2018, the firm submitted approximately 6.6 million inaccurate or incomplete Reportable Order Events (ROEs) to OATS. Specifically, the broker transmitted 2,860,187 Desk Reports that contained an inaccurate Desk Type code and 3,755,778 new order type events that failed to report an Information Barrier ID, in violation of FINRA Rules 7450 and 2010.
All of the firm’s equity retail orders flow through the firm’s agency desk, and are then routed out for execution. During the relevant period, certain types of orders, including orders over 5,000 shares, were held for manual handling by a firm trader. In these limited instances, the firm trader had the ability and authority to make a principal trade on behalf of the firm and determine where the order should be routed for execution.
The firm submitted Desk Reports coding its equity retail orders with the Desk Type code of “T”, indicating that the firm’s trading desk received the relevant orders for execution. However, since all of the orders were sent through the firm’s agency desk and routed to other market destinations for execution, the firm should have used the Desk Type code of “A” for agency when reporting these orders to OATS. Between October 1, 2014, and April 4, 2018, JANY reported 2,860,187 Desk Reports that contained inaccurate Desk Type codes.
FINRA Rule 5320 prohibits a firm from trading in its own account ahead of customer orders in the same equity security. However, in the case of National Market System stocks, if a firm uses information barriers that operate to prevent one trading unit from obtaining knowledge of customer orders held by a separate trading unit, then the firm’s proprietary trading units may trade at prices that would satisfy the customer orders held by the separate trading unit. In cases where an information barrier exists, firms must report the existence of that information barrier using an Information Barrier ID.
The firm’s market making desk and retail desk are within its equity division, but are prohibited from viewing each other’s orders due to the firm’s use of information barriers. Because the broker utilized information barriers between its market making and retail desks, it was required to identify the information barriers by populating the appropriate Information Barrier ID in its OATS reports. Between October 1, 2014 and April 4, 2018, JANY reported 3,755,778 new order type reports that failed to contain an Information Barrier ID code.
The firm transmitted a total 6,615,965 ROEs to OATS that contained inaccurate or incomplete information, which could have impacted FINRA’s surveillance patterns. The inaccurate Desk Type code and Information Barrier ID ROEs represent well over a third (39.83%) of all events the firm transmitted to OATS during the relevant period. By virtue of the foregoing, the firm violated FINRA Rules 7450 and 2010. Each of these instances constitutes a separate and distinct violation of FINRA Rule 7450.
The firm also failed to reasonably supervise for compliance with its OATS reporting requirements.
In addition to the fine, the firm has agreed to a censure and an undertaking to update its WSPs with respect to OATS compliance.
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