FINRA fines Wells Fargo Securities for overstating its advertised trade volume
Wells Fargo Securities, LLC has agreed to pay a fine of $200,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From December 2016 to June 2018, Wells Fargo configured its systems to automatically advertise daily trading volume in numerous securities through two third-party service providers that publish such information, Bloomberg and Thomson Reuters. During this period, two distinct technological misconfigurations within the firm’s systems caused Wells Fargo to overstate its executed trade volume.
From December 2016 to June 2018, an error in the firm’s trade advertising software caused the firm to erroneously advertise certain options trades as equity transactions. This caused the firm to overstate its trading volume in equity transactions on both Bloomberg and Thomson Reuters in 4,597 instances, resulting in an overstatement of 32,935,787 shares across 901 securities. The firm stopped the overstatements caused by the software error by June 2018.
From June 12 to October 11, 2017, a misconfiguration of the order management system used by one of the firm’s trading desks caused certain trades routed between that desk and the firm’s electronic trading desk to be advertised on Bloomberg twice. This caused the firm to overstate its trading volume on Bloomberg in 5,623 instances; resulting in an overstatement of 114,888,829 shares across 3,036 securities. The firm stopped the overstatements caused by the order management system issue by October 11, 2017.
Overall, during the relevant period, the firm overstated its trade volume by nearly 148,000,000 shares in over 10,000 instances.
During the period December 2016 through October 2018, Wells Fargo failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with FINRA Rule 5210. During this period, the firm conducted daily reviews of its manually advertised trade· volume, and monthly reviews of a sample of its auto- advertised trade volume.
The firm, however, had no defined criteria for selecting the monthly sample, or for determining how many securities or what proportion of the firm’s advertised trade volume should be included in the sample. Also, to perform its monthly reviews, the firm compared its actual trading volume against its advertised trade volume as reflected in a report generated by its trade advertisement software and on the Thomson Reuters webpage.
That process, however, was not reasonably designed to identify overstatements of the firm’s trading volume advertised on Bloomberg which were sent to Bloomberg directly through the firm’s order management system rather than through the firm’s trade advertisement software.
Additionally, the firm failed to perform any testing of option trades or multi-leg trades to ensure that the non-equity components were properly excluded from advertisement as intended, nor did the firm test to ensure that such trades were otherwise advertised correctly.
The firm revised its supervisory systems relating to trade volume advertisement in or around October 2018.
Therefore, the firm violated FINRA Rules 3110 and 2010.
On top of the fine, Wells Fargo has agreed to a censure.