Wells Fargo Securities, LLC (WFSL) agreed to pay a fine of US $3.25 million to resolve administrative charges brought by the Financial Industry Regulatory Authority that from January 2008 through March 2017 the firm failed to have “any” system of supervision to ensure its compliance with its position reporting obligations for over-the-counter options transactions. According to FINRA, after WFSL (formerly known as Wachovia Capital Markets LLC) executed a large OTC options trade in 2008, the firm recognized its need to develop systems to report OTC options trades. However, said FINRA, because of various business combinations in Fall 2008, the firm never fully implemented this project until WFSL became self-clearing in mid-2014. However, even after developing a system to ensure compliance with its reporting obligations, WFSL continued to have reporting problems with its OTC options trades through March 2017, said FINRA. FINRA also charged WFSL with violating options position limits and other violations. In determining the amount of the settlement, FINRA credited WFSL’s “extraordinary cooperation.”

Compliance Weeds: Generally, FINRA requires members to report or have reported on their behalf any options position in any account or multiple accounts where the firm or any customer, whether alone or in concert, maintains an aggregate position of 200 or more options contracts (whether long or short) of the put class and the call class on the same side of market for the same underlying security or index. All positions must be reported to LOPR by no later than close of business on the business day following the day the transaction or transactions happened that necessitated the filing. Where aggregate positions meet the 200-contract threshold, the option position of each individual account must be reported. Accounts must be aggregated when they are under common control or acting in concert. Control is presumed for all parties to a joint account who have authority to act on behalf of the account, all general partners of a partnership account, a person or entity that has a 10 percent or more ownership interest in an entity or shares 10 percent or more of an account’s profits and losses, accounts with common directors or management, or an individual or entity who has authority to execute transactions in an account. (Click here to access the May 2016 guidance by FINRA regarding member firms’ LOPR obligations.)