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Broker-dealer settles FINRA charges for order-flow disclosure violations

Regulatory team, Cadwalader Wickersham & Taft, New York, 11 September 2020

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A broker-dealer has settled charges laid by the US Financial Regulatory Authority for failing to disclose material aspects of payment for order-flow arrangements. This seems to have stemmed from a misunderstanding of the rules.

FINRA stated that the broker-dealer broke Rule 606 (entitled "Disclosure of Order Routing Information") by failing to state in its quarterly reports the material aspects of certain payment for order-flow arrangements that it had with four venues, including the payment amounts per share and per order. According to FINRA, the broker-dealer incorrectly believed that Rule 606 did not require disclosures on a per-share or per-order basis regarding payments received.

In addition, FINRA determined that the broker-dealer broke FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), and 3110(a) and (b) ("Supervision"), by failing to implement a good enough supervisory system and written supervisory procedures to ensure compliance with Rule 606. FINRA specifically noted that the broker-dealer's written supervisory procedures were focused "exclusively on the compilation and publication of the Rule 606 quarterly reports" and lacked any procedures requiring a review of the accuracy or completeness of the information in the reports.

To settle the charges, the broker-dealer agreed to a censure and $75,000 fine ($50,000 for the Rule 606 violations, and $25,000 for the supervision violation).

* Cadwalader, Wickersham & Taft can be reached on +1 212 504 6000 or at cwtinfo@cwt.com

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