BNP Paribas to pay $100,000 fine over transaction reporting failures
The violations include failure to report to the FINRA/Nasdaq Trade Reporting Facility some 676 transactions effected pursuant to the exercise of an OTC option during the period from December 2011 through February 2014.
The United States Financial Industry Regulatory Authority (FINRA) on Thursday accepted a Letter of Acceptance, Waiver and Consent (AWC) by BNP Paribas Securities Corp. The Letter has been submitted for the purpose of proposing a settlement of the alleged rule violations. BNP Paribas also consents to the imposition of censure and fine of $100,000.
The alleged violations concern transaction reporting failures.
Specifically, in December 2011, BNP Paribas set up an automated process to report OTC options exercises to the FINRA/Nasdaq Trade Reporting Facility (FNTRF) by 8:00 p.m. ET. This process was supposed to draw information from two internal Firm systems that contained data for vanilla options and structured options. However, when setting up the automated process, data from the Firm’s internal system for vanilla options was excluded due to a programming error that was not detected by the Firm until several months after it received an information request from FINRA in November 2013, which was sent in conjunction with this investigation.
As a result, during the period of December 2011 through February 2014, the Firm failed to report to the FNTRF 676 transactions effected pursuant to the exercise of OTC vanilla options that required an .RX modifier. A sampling of the months of January 2013 through February 2014, revealed that BNP Paribas failed to report approximately 17.5% of all transactions that required an .Rx modifier during this period. Accordingly, the Firm violated FINRA Rule 7230A(g)(2).
In February 2014, the Firm implemented a manual process to report vanilla options, and it continued reporting structured options via its automated process until March 15, 2015. Beginning on March 15, 2015, BNP Paribas decommissioned its automated process and began manually reporting to the FNTRF all options transactions, which included both vanilla options and structured options, that required an .RX modifier. The manual process involved receiving data from the U.S. as well as the Firm’s foreign affiliates in Paris and Hong Kong.
However, because the Firm’s supervisory system failed to give guidance on when to report these transactions, the information that the Firm required from its foreign affiliates was not received until after the 8:00 p.m. ET cutoff time. The following morning, a designated BNP Paribas employee from the Regulatory Reporting Controls team would manually review and report those transactions to the FNTRF.
During the period of January 2015 to March 15, 2015, the Firm failed to timely report to the FNTRF by 8:00 p.m. ET 177 transactions effected pursuant to the exercise of OTC vanilla options on behalf of its foreign affiliates that required an .RX modifier.
Moreover, beginning on March 15, 2015, when the Firm began manually reporting all options transactions, through December 2015, the Firm failed to timely report to the FNTRF an additional 76 transactions effected pursuant to the exercise of OTC options on behalf of its foreign affiliates, which included both vanilla options and structured options.
These 253 late transactions constituted approximately 80.57% of the transactions that required an .RX modifier that the Firm reported during this period.
During the period of January 2016 through December 2016, the Firm failed to timely report to the FNTRF by 8:00 p.m. ET 311transactions that required an .RX modifier. These late transactions constituted approximately 95.11% of the transactions that the Firm reported with a .RX modifier during this period.
By virtue of this conduct, BNP Paribas violated FINRA Rule 7230A(g)(2).
In addition, during the period from December 2011 through September 2017, BNP Paribas did not establish and maintain a reasonably designed supervisory system to achieve compliance with the timely reporting of transactions effected pursuant to the exercise of an OTC option to the FNTRF.
