FINRA fines BofA Securities for reporting deficiencies
BofA Securities Inc has agreed to pay a $325,000 fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From January 2014 through February 2022, BofAS published inaccurate data in 107 monthly reports it was required to publish pursuant to Regulation NMS Rule 605.
From January 2014 through February 2022, the firm had two market centers, its broker- dealer (MLCO) and its ATS (MLIX), for which it was required to report separate statistical information concerning order executions under Rule 605. From January 2014 through April 2021, BofAS published statistical information concerning order executions for MLCO and MLIX together on its publicly available Rule 605 monthly reports for MLCO rather than in separate reports for each market center, and classified MLIX executions as “away executed shares” in that report.
Further, as a result of the combined report, the firm inaccurately categorized certain mid-point peg immediate or cancel orders in order type categories other than the inside-the-quote order type category, and certain immediate or cancel orders within the market order type category rather than the marketable limit order type category.
The firm implemented a separate stand-alone report MLIX in April 2021 that prevents these types of issues from recurring.
Moreover, from January 2014 through February 2022, various technological issues caused the firm to publish inaccurate Rule 605 reports for MLCO.
First, from January 2014 through April 2021, the firm misclassified orders based on inaccurate order quantities that did not reflect a reduction for prior executions.
Second, from April 2019 through April 2021, the firm did not properly attribute executions to the correct canceled-and-replaced order, misclassified orders using incorrect quotations within the same second, and misclassified some inside-the-quote orders as at-the-quote orders.
Third, from May 2021 through February 2022, the firm excluded certain reportable executions from the MLCO report. For instance, some reportable orders were excluded because of a broken linkage in the firm’s smart order router that caused some orders filled by MLIX to not be reflected accurately, or at all, in the MLCO report, and others were excluded because of missing or incorrect order IDs that resulted in the receipt of fills not being linked to the original order.
Finally, from April 2021 to October 2021, three inaccuracies occurred within the firm’s new, stand-alone MLIX 605 report. These inaccuracies were the result of coding errors that caused the firm to exclude certain reportable, executed orders from the MLIX report.
In total, from January 2014 through February 2022, the firm published 98 inaccurate monthly Rule 605 reports of order executions by MLCO and nine inaccurate monthly Rule 605 reports of order executions by MLIX, for a total of 107 inaccurate Rule 605 reports.
Therefore, the firm violated Regulation NMS Rule 605 and FINRA Rule 2010.
Moreover, from January 2014 to November 2021, the firm’s supervisory system, including its written procedures, was not reasonably designed to achieve compliance with Regulation NMS Rule 605. During that time, the firm had no system to check the accuracy of the order executions it reported on its Rule 605 report.
On top of the $325,000 fine, BofA Securities has agreed to a censure.