Wells Fargo Clearing Services, LLC has agreed to pay a fine of $125,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From at least January 2018 to July 2022, Wells Fargo failed to report 837,805 fractional share trades to the FINRA/Nasdaq Trade Reporting Facility (FNTRF) or the Over-the-Counter Reporting Facility (ORF) that were executed in a principal capacity. Wells Fargo executed these transactions on a principal basis to facilitate liquidations of fractional shares purchased by customers through the firm’s dividend reinvestment program.

Until approximately January 2019, Wells Fargo did not have a system for reporting fractional share transactions because it did not appreciate that it had an obligation to report such transactions.

Although Wells Fargo began reporting fractional share trades in January 2019, from approximately January 2019 to July 2022, the firm failed to report 19,274 manual fractional share transactions due to a flaw in the firm’s reporting system.

In addition, from at least January 2018 to October 2023, the firm failed to report approximately 46,000 error correction trades, executed in a principal capacity, to the FNTRF or ORF. Wells Fargo executed these transactions on a principal basis to correct errors in transactions the firm had previously executed as an agent for customers.

The firm began reporting some error correction trades in May 2020 but did not finish developing a system to report all types of error correction trades until October 2023.

Because the firm failed to report fractional share and error correction transactions, the firm failed to pay the associated regulatory transaction fees.

By failing to report these transactions, Wells Fargo violated FINRA Rules 6380A, 6622, and 2010.

Further, from January 2019 to April 2022, Wells Fargo failed to identify the contra side executing broker-dealer in 468,005 fractional share trade reports submitted to the FNTRF or ORF.

Therefore, Wells Fargo violated FINRA Rules 7230A(d), 7330(d), and 2010.

Also, from at least January 2018 to October 2023, Wells Fargo failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with reporting obligations for fractional share and error correction trades. Although Wells Fargo began reporting fractional share transactions in January 2019, the firm lacked a system for reporting manual fractional share transactions until July 2022.

Although Wells Fargo began to phase in reporting certain types of error correction transactions beginning in May 2020, the firm lacked a system for reporting all types of error correction transactions until October 2023.

Moreover, the firm did not have any supervisory reviews or WSPs relating to error correction trades until September 2021 or fractional share trades until December 2021.

Therefore, Wells Fargo violated FINRA Rules 3110(a) and (b) and 2010.

The firm has agreed to the imposition of:

• a censure;
• a $125,000 fine; and
• an undertaking to pay the regulatory transaction fees as required for unreported fractional share and error correction trades executed between January 2018 and October 2023.