FINRA fines Dash Financial Technologies over inaccuracies related to Reportable Order Events

The United States Financial Industry Regulatory Authority (FINRA) on Thursday announced the imposition of a $90,000 fine on Dash Financial Technologies LLC (f/k/a/ Dash Financial LLC, and Electronic Brokerage Systems LLC) as a part of a settlement related to violations of rules concerning Reportable Order Events (ROEs).

During the period of July 23, 2012 through May 31, 2017 (the “Review Reriod”), Dash transmitted to the Order Audit Trail System (OATS) over one billion inaccurate ROEs, primarily due to the failure to append the “directed” special handling code to directed orders.

FINRA has found that, during the review period, Dash reported approximately 1,067,670,851 inaccurate, incomplete, or improperly formatted ROEs, which accounted for over 60% of the ROES that the firm was required to transmit to OATS during the review period. This includes:

• 982,563,975 New Order Reports’ that failed to identify the “Directed” Special Handling Code on directed orders;

• 84,001,091 Route Reports3that contained an inaccurate Routing Method Code;
• 386,783 Cancel Reports’ that contained an inaccurate Cancel Leaves Quantity;
• 399,793 New Order Reports that contained an inaccurate Trading Session Code;
• 315,543 New Order Reports for one client that contained an inaccurate Member Type Code, Order Origination Code and failed to include a Routing Firm member participant identifier;
• 2,316 Execution Reports that contained an Execution Timestamp which omitted millisecond information; and
• 1,350 Execution Reports that contained an inaccurate Execution Type Indicator and Leaves Quantity.

This conduct constitutes violation of FINRA Rules 7450 and 2010.

Furthermore, during the review period, Dash’s supervisory system was not reasonably designed to achieve compliance with respect to applicable securities laws and regulations, and FINRA Rules, concerning OATS. The firm’s written supervisory procedures described several reviews conducted by the firm’s OATS Administrator and/or Compliance personnel, including daily and weekly reviews related to rejects, mismatches, and out-of-sequence events, and monthly reviews of FINRA OATS Report Cards.

This way, Dash’s supervisory system focused on correcting OATS issues that either impacted the ability to submit OATS ROES or were identified by FINRA (i.e., rejects, mismatches, out-of-sequence events, etc.), but was not reasonably designed to identify situations in which ROEs contained inaccurate information that would not result in rejects, mismatches, out-of-sequence events, etc., such as the situations identified above. In this regard, while Dash reviewed a small number of orders on a monthly and semi-annual basis to ensure the ROEs submitted for those orders were accurate, the number of orders reviewed was unreasonably small and not tailored to the firm’s business activity.

As a result of its supervisory failures, Dash was unaware of its inaccurate OATS submissions until notified by FINRA staff. This conduct is in breach of NASD Rule 3010 (for conduct prior to December 1, 2014), FINRA Rule 3110 (for conduct on or after December 1, 2014), and FINRA Rule 2010.

In addition to the fine of $90,000 ($65,000 for OATS violations and $25,000 for related supervisory violations), the firm consents to the imposition of a censure.