FINRA fines Dealerweb for reporting deficiencies
Dealerweb Inc has agreed to pay a fine of $100,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Between July 2016 and December 2020, the firm inaccurately reported approximately 180,000 transactions in TRACE-Eligible Securities to TRACE without the required “No Remuneration” (NR) indicator in violation of FINRA Rules 6730(d) and 2010.
In the relevant period, Dealerweb operated an alternative trading system (ATS) and a voice interdealer trading desk. Dealerweb’s customers paid a non-transaction-based subscription fee to trade on the ATS or trading desk, which meant that the price of the transactions on the ATS or trading desk did not include a commission, mark-up, or mark-down. Because the majority of Dealerweb’s subscribers were other broker-dealers, most of the firm’s transactions were subject to the inter-dealer exception to the NR indicator requirement.
In approximately 180,000 transactions with non-broker-dealer (e.g., bank) customers, however, Dealerweb was required, but failed, to report the transactions using the NR indicator.
Specifically, between July 2016 and December 2020, the firm inaccurately reported approximately 5,500 multi-leg transactions with its non-broker-dealer customers through its trading desk. In these transactions, the firm earned a mark-up or mark-down on one leg of the transaction, but not on the other leg of the transaction.
Dealerweb incorrectly determined the applicability of NR indicator reporting obligations with respect to these transactions and failed to report the leg of the transaction on which it did not earn a mark-up or mark-down using the NR indicator.
Additionally, between January 2018 and December 2020, Dealerweb was a party to approximately 175,000 transactions with one non-broker-dealer customer through its ATS. Dealerweb did not earn a commission, mark-up, or mark-down on these transactions and was therefore required to report them using the NR indicator. Dealerweb failed to report these transactions using the NR indicator because the customer had previously conducted transactions through its broker-dealer affiliate, and following the transition of that business to the customer’s non-broker-dealer affiliate, Dealerweb did not update its transaction reporting to reflect that the customer’s transactions were no longer subject to the inter-dealer exception.
Dealerweb was unaware of the NR indicator reporting issues described above until FINRA notified the firm.
By failing to report the NR indicator on approximately 180,000 transactions in TRACE- Eligible Securities, Dealerweb violated FINRA Rules 6730(d) and 2010.
Also, Dealerweb failed to reasonably supervise its TRACE reporting. Between July 2016 and March 2022, the firm failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA Rule 6730(d).
Although Dealerweb performed supervisory reviews of its TRACE reporting to identify late reported transactions, its supervision was not reasonable because it did not have a process to check the accuracy of transaction information reported, including the NR indicator and other modifiers and indicators required by FINRA Rule 6730(d)(4).
In December 2021, the firm implemented a new process that included a daily review for accurate reporting of transaction information, including the NR indicator. In March 2022, the firm updated its written supervisory procedures to reflect that review.
On top of the fine, the firm has agreed to a censure.