FINRA fines SunTrust Robinson Humphrey $1.25 million
SunTrust Robinson Humphrey, Inc, now known as Truist Securities, Inc, has agreed to pay a fine of $1.25 million as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From April 2013 through June 2015, in an effort to attract more investment banking business, certain traders at SunTrust engaged in trading designed to increase the firm’s trading volume in certain stocks. On occasion, the firm bought and sold certain stocks with other market participants in quick succession, trading in the open market to increase the firm’s trading volume.
Certain traders at the firm also overstated their advertised trading volume to media sources that published trade rankings, representing that SunTrust had traded more stock that it actually had. Through these actions, SunTrust made it appear that it was more active in the stock of certain issuers that were either current or prospective clients.
SunTrust’s investment banking department created and maintained a document titled the “Focus List,” which was provided to the firm’s equity traders. The Focus List contained the names of companies that were current or prospective investment banking clients. In addition to the company names, the Focus List ranked how much of each company’s stock SunTrust traded compared to other broker-dealers.
The rankings were based on advertised trading volume on platforms such as Bloomberg and AutEx – subscription-based market data providers that use advertised trading volume to compile reports and securities-based rankings of broker-dealers. The Focus List also included a “target” trade ranking range – a goal for where the investment banking department wanted the firm to rank. Certain actual or prospective clients may have considered trade ranking when deciding whether to engage the firm for investment banking business.
During the relevant period, SunTrust increased its principal trading volumes in some of the Focus List stocks. In several instances, the firm’s trading volume increased on the first day a stock was added to the Focus List and, in one instance, the firm’s principal trading represented as much as 46 percent of the total daily volume in that security. To achieve this result, the firm sometimes entered principal orders to buy and sell shares of Focus List stocks in quick succession, sometimes losing money but increasing the firm’s volume in those securities.
SunTrust overstated its advertised trading volume in Focus List stocks on 962 occasions, totaling over 12 million shares. For example, on March 12, 2015, the firm traded 927 shares in one security but advertised that it traded 9,668 shares. By overstating its advertised trade volume in the securities on the Focus List, SunTrust was able to increase its trading rank without trading in those securities.
After receiving an inquiry from FINRA, SunTrust conducted an internal investigation, self-reported the cause and scope of the over-advertising, and instituted remedial changes.
Therefore, SunTrust violated FINRA Rules 5210 and 2010.
SunTrust’s supervisory system, including its written procedures, was not reasonably designed to achieve compliance with FINRA Rule 5210. Although the firm had a Restricted List and a Watch List, as well as surveillance to review trading in the securities on those lists, the surveillance only reviewed the traders’ personal accounts— not the firm’s principal accounts—until October 2017.
Moreover, SunTrust had surveillance reports designed to detect potentially manipulative trading, including wash trades, but the firm had no controls or reviews designed to identify its equity traders’ orders to buy and sell stocks in similar or the same quantities within short periods of time in the firm’s principal accounts until August 2017.
Finally, the firm had no procedure or designated supervisor to review the firm’s trading volume and compare it to the volume reported to third party publishing platforms until August 2015.
Therefore, SunTrust violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
On top of the fine, the respondent consents to the imposition of a censure.