FINRA fines CODA Markets for failures related to reportable order events
From January 1, 2015 through July 20, 2018, CODA failed to report millions of reportable order events to the Order Audit Trail System and reported over one billion ROEs that contained inaccurate or incomplete data.
The United States Financial Industry Regulatory Authority (FINRA) has imposed a fine of $90,000 on broker-dealer CODA Markets, Inc. over failures related to reportable order events (ROEs). The fine is a part of a settlement that FINRA decided to accept on November 21, 2019.
During the period January 1, 2015 through July 20, 2018, CODA, which operates an alternative trading system, failed to report millions of ROEs to the Order Audit Trail System (OATS) and reported over one billion ROEs that contained inaccurate, incomplete or improperly formatted data. In addition, from January 1, 2015 through January 17, 2019, the firm failed to maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with FINRA Rules concerning OATS reporting.
In particular, FINRA has found that, during the period from January 1, 2015 through June 30, 2015, CODA failed to transmit to OATS 4,026,370 Cancel Reports, which constituted a violation rate of 0.1%. These instances involved partial cancellations. The firm corrected the error on May 31, 2016.
Regarding inaccurate reports, FINRA refers, inter alia, to violations committed during the period January 1, 2015 through June 30, 2015. During the period, the firm submitted 166,666,709 New Order Reports to OATS that did not include the Special Handling Code of Immediate or Cancel, which constituted a violation rate of 4.9%. This issue was caused by an error in the Firm’s OATS reporting logic and was corrected as of February 12, 2016.
The firm also made timestamp errors. FINRA found based on a sample, for the trade date February 26, 2015, CODA submitted 25 Route Reports and 25 corresponding New Order Reports containing an inaccurate Order Sent and an inaccurate Order Received, timestamp, respectively. This inaccurate timestamp issue affected at least 1,413,787,189 ROEs during the sample period from August 1, 2015 through June 30, 2018, which constituted a violation rate of 6.5%. The Firm corrected the error when it reverted to using a single MPID on November 1, 2018.
FINRA also found that, from January 1, 2015 through January 17, 2019, the firm’s supervisory system, including WSPs, were not reasonably designed to achieve compliance with respect to FINRA Rules concerning OATS. In particular, CODA’s WSPs did not include a procedure and the firm did not have a system for reviewing the completeness and accuracy of OATS submissions until October 1, 2017. Although the firm put in place a procedure on October 1, 2017, providing for an annual review of ROEs, that procedure was not reasonably designed to promptly identify and correct errors.
Further, until 2016, the firm did not have procedures or a system to achieve compliance with the requirement to synchronize its clock daily, prior to the open, and to monitor for intraday drift. Finally, from September 2016 through March 22, 2017, the firm failed to provide evidence that it conducted the supervisory reviews required by its WSPs with respect to clock synchronization, consistency of OATS information with TRF information and consistency of routed order Ids.
On top of the fine of $90,000, the firm has agreed to censure and an undertaking to review and revise its systems and written procedures regarding the supervision of its OATS.
