The Financial Industry Regulatory Authority has fined Pershing, a subsidiary of the Bank of New York, $42,000 for failing to include the non-transaction-based compensation indicator on 23,000 municipal securities transactions, violating Municipal Securities Rulemaking Board Rules G-14 on customer transaction reporting and G-27 on supervision.
Pershing also violated FINRA Rules 6730, 3110 and 2010, consented to a censure and agreed to pay a total of $150,000, $42,000 of which pertains to MSRB rule violations. As part of the settlement, the firm neither admitted to nor denied the allegations, which is standard in most FINRA enforcement actions.
“Pershing is pleased to have resolved this matter,” a BNY Pershing spokesperson said in an email exchange. “We take our regulatory and compliance responsibilities very seriously.”
The period in question lasted from July 2016 to April 2021, where the reports on 23,000 transactions did not include a mark-up, mark-down or commission.
“Specifically, the firm’s electronic system for reporting transactions failed to account for the fact that it did not accept compensation for transactions with two affiliates,” FINRA said. “Thus, the firm erroneously reported the affiliate transactions without the applicable NTBC indicator.”
The firm also failed to report the no remuneration indicator on 155,000 TRACE eligible securities, which is essential in reporting when a certain transaction does not include a commission, mark-up or mark-down.
“A failure to accurately report the NR indicator on qualifying transactions to TRACE affects the reliability of publicly disseminated transaction and pricing data and the accuracy of the audit trail for such transactions,” FINRA said.
Pershing failed to catch the mistake, therefore the firm’s supervisory system was not designed to achieve compliance with MSRB Rule G-14 on customer transaction reporting and also did not have adequate written supervisory procedures.
“Pershing addressed this issue in May 2021, when firm personnel began reviewing randomly selected trades on a monthly basis to confirm whether the firm correctly appended the NTBC indicator in reports to the RTRS,” FINRA said. “The firm memorialized this process in its written supervisory procedures.”
The firm also updated its written supervisory procedures in May 2021, where it began “performing monthly reviews of a random sample of TRACE-eligible securities transactions for the accuracy of the reported NR indicator,” FINRA said.