The Securities and Exchange Commission brought and settled an enforcement action against Convergex Execution Solutions, LLC (now known as Cowen Execution Services, LLC), a registered broker-dealer, for submitting to it data that was incomplete or deficient in response to a high number of electronic blue sheet requests.

These deficiencies, which occurred from May 2012 through February 28, 2016, included customer identifying information such as customer names, addresses, or taxpayers' identification. The SEC said that other missing or deficient fields related to information about the securities transaction reported, such as order execution times, exchange codes, transaction type identifiers and certain execution information that was reported at an aggregate but not on a per trade basis.

The SEC noted that, after Convergex was sanctioned by the Financial Industry Regulatory Authority in March 2012 for problematic EBS submissions, it instituted a new software platform to validate such transactions. However, while the revised system identified some deficiencies, it did not detect many of the deficiencies in the EBS reports provided to the Commission. Among other things, Convergex had no process to compare information reported to the SEC in its EBS submissions with information in underlying databases, said the SEC.

Convergex agreed to pay a fine of US $2.75 million to settle the SEC’s enforcement action.

Blue sheets refer to trade data submitted by certain regulated entities, including broker-dealers, to the SEC and self-regulatory organizations such as FINRA in an automated form in response to requests by the regulatory bodies in connection with their investigations, typically of equity market activity.

Compliance Weeds: In July 2016, Citigroup Global Markets Inc. agreed to pay a US $7 million fine to the Securities and Exchange Commission to resolve charges that, from 1999 through 2014, it submitted 2,382 erroneous blue sheets with it and 753 erroneous blue sheets with the Financial Industry Regulatory Authority. According to the SEC, these errors occurred as a result of a coding error in Citigroup’s electronic blue sheet computer system that was not detected until 2014.

A few weeks earlier, 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.

Relevant entities that may be required to file electronic blue sheets with regulators should periodically review submissions against source information to ensure their systems are properly collecting and processing such data internally.

(Click here for additional background in the article “Computer Coding Error Results in Broker-Dealer Blue Sheets’ Errors Over 15 Years and US $7 Million SEC Fine” in the July 17, 2016 edition of Bridging the Week.)