BNP Paribas agrees to pay $90,000 fine as part of settlement with FINRA

Maria Nikolova

The fine stems from OATS violations, as well as Rule 606 violations and supervision violations.

BNP Paribas Securities Corp. has agreed to pay a $90,000 fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA). The fine stems from OATS violations, as well as Rule 606 violations and supervision violations.

In particular, FINRA staff sampled 50 orders for OATS compliance during the 2015 exam period (September 22-23, 2015) and identified 46 instances in which BNP Paribas transmitted inaccurate, incomplete, or improperly formatted data to OATS. Each of the 46 instances failed to contain the “Not Held” special handling code for an order that originated with a foreign affiliate of the firm.

The firm identified a software error, dating back to 2012, which affected only orders received electronically from that foreign affiliate. That software error caused 45 of the firm’s 46 failures to report the “Not Held” handling code; the one other instance resulted from human error. The firm learned about the issue through a regulatory inquiry from FINRA, and it fixed the software error as of July 2016.

Further, from January 1, 2015 through September 2015, the firm failed to report the material aspects of the firm’s relationship with certain venues to which it routed non-directed orders for execution, including any arrangements for payment for order flow and any profit-sharing relationship.

Additionally, during that same period, the firm failed to publish accurate percentages of the non-directed “other” orders that it routed.

By virtue of the foregoing, BNP Paribas violated Rule 606 of Regulation NMS and FINRA Rule 2010. Let’s recall that Rule 606 of Regulation NMS requires every broker or dealer to make publicly available each calendar quarter a report containing information on its routing of non-directed orders in national market system (NMS) securities. Rule 606(a)(1)(iv) provides that the firm’s report must include “[a] discussion of the material aspects of the broker’s or dealer’s relationship with each venue identified pursuant to paragraph (a)(1)(ii) of this section, including a description of any arrangement for payment for order flow and any profit-sharing relationship and a description of any terms of such arrangements, written or oral, that may influence a broker’s or dealer’s routing decision.”

Also, FINRA has found that, from January 2015 through August 18, 2017, the firm’s supervisory system, including its written supervisory procedures (WSPs), were not reasonably designed to achieve compliance with FINRA Rules concerning the accuracy of OATS reporting. Specifically, the firm’s supervisory procedures for reviewing the accuracy of its OATS reporting involved reviewing the OATS website and FINRA’s OATS Compliance Monthly Report Cards. But the OATS website and the Monthly Report Cards do not encompass all aspects of OATS reporting and would not reflect a failure to report a special handling code.

Finally, from September 22, 2015 through August 18, 2017, the firm’s WSPs for its GES Desk were not reasonably designed to achieve compliance with respect to rules applicable to trade reporting and market-making activity. A firm’s WSPs should describe the following: (1) the specific identification of the individual(s) responsible for supervision; (2) the supervisory steps and reviews to be taken by the appropriate supervisor; (3) the frequency of such reviews; and, (4) how such reviews shall be documented. Specifically, the firm’s WSPs for its GES Desk failed to include one or more of those descriptions with respect to, among other things, order handling, trade reporting, and other trading rules.

BNP Paribas has agreed to a censure and a fine of $90,000 (of which, $30,000 is for OATS violations; $15,000 is for Rule 606 violations, and $45,000 is for supervision violations).

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