Macquarie Capital (USA) Inc. agreed to pay a fine of US $2.95 million to the Financial Industry Regulatory Authority to resolve charges that, between 2012 and 2015, it produced to the Securities and Exchange Commission and FINRA a substantial number of so-called “blue sheets” that were inaccurate and did not have an adequate audit system to ensure the reliability of its blue sheet submissions. (Blue sheets refer to trade data produced on an automated basis by member firms to the SEC or FINRA, upon their request. Regulators use this data for their investigations, including those related to suspicious and insider trading.) According to FINRA, Macquarie’s issues began in January 2012 after it developed a new system to generate blue sheet submissions following the commencement of clearing activities for its cash trading business. FINRA determined that, during the relevant time, because of its trade reporting problems, Macquarie submitted to it at least 600 blue sheets that misreported approximately 160,971 transactions and to the SEC at least 1,143 blue sheets that misreported approximately 178,318 transactions. 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. According to FINRA, Macquarie self-reported its infraction. Separately, Barclays Capital, Inc. agreed to pay more than US $10 million in restitution to customers and a fine of US $3.75 million to resolve FINRA charges that it failed to comply with its suitability obligations in connection with sales of mutual funds to retail clients from January 1, 2010, through June 30, 2015. Among other things, FINRA claimed that Barclays failed to provide adequate supervisory guidance to ensure the suitability of its mutual fund transactions; failed to identify unsuitable mutual fund switches; failed to notify customers of the costs of switches; and failed to have a system to aggregate mutual fund purchases to ensure customers received appropriate discounts, among other issues.
Compliance Weeds: Maintaining accurate books and records and producing accurate information to regulators is required both in the regulated securities and futures industries. Both the Securities and Exchange Commission’s and the Financial Industry Regulatory Authority’s rules require broker-dealers to provide trade data upon request. The SEC requires broker-dealers to submit “legible, true, complete and current” blue sheet data (click here and here to access SEC Rules 17a-4(j) and 17a-25, respectively), while FINRA has a similar obligation (click here and here to access FINRA Rules 8211 and 8213, respectively). The Commodity Futures Trading Commission has similar recordkeeping and production requirements for future commission merchants as well as other industry participants. (Click here and here to access CFTC rules 1.35 and 1.31, respectively.)