Deutsche Bank Securities Inc. agreed to pay a fine of US $6 million to resolve charges brought by the Financial Industry Regulatory Authority that it filed “thousands” of deficient blue sheets with it and the Securities and Exchange Commission from 2008 through 2015. (Blue sheets refer to trade data submitted by certain regulated entities, including broker-dealers, to the SEC and FINRA in an automated form in response to requests by the regulatory bodies in connection with their investigations, typically of equity market activity.) According to FINRA, during the relevant time, DBSI experienced “multiple problems” that sometimes caused incorrect information to be included on blue sheets; omitted required transactions; duplicated some transactions; and did not include order execution times. FINRA said these errors were attributable to “significant failures” within the firm’s blue sheet system, “including programming errors in system logic and [the firm’s] failure to implement enhancements in response to new regulatory reporting requirements.” To resolve this matter, DBSI also agreed to retain an independent consultant to help it review and make recommendations regarding its policies, procedures and systems dealing with blue sheets.
Compliance Weeds: Macquarie Capital (USA) Inc. also recently agreed to pay a substantial fine (US $2.95 million) to FINRA to resolve charges that, between 2012 and 2015, it produced to the SEC and it a substantial number of blue sheets that were inaccurate and did not have an adequate audit system to ensure the reliability of its blue sheet submissions. FINRA alleged that Macquarie’s errors included reversing buy/sell codes on allocations of certain customer trades; miscalculating the net amount of allocations on certain customer trades; and failing to provide any or complete customer information on certain transactions. (Click here for details of FINRA’s prior action in the article, “Broker-Dealer Agrees to FINRA Sanction of US $2.95 Million for Alleged Blue Sheet Failures” in the June 2, 2016 edition of Bridging the Week.) If reporting firms have not done so already, it may be advisable sooner not later (and periodically afterwards) to review both the logic of any system designed to produce blue sheets, as well as the sources (and integrity) of the data received by the system. Sample output should also be reviewed carefully to ensure it matches regulatory requirements and tests should be conducted comparing expected with actual output. Indeed, this type of periodic testing should be considered for all systems that generate regulatory reporting.