Firm Failed to Report Over-the-Counter Options Positions in More Than 7.4 Million Instances
FINRA announced today that it has fined BofA Securities Inc. (BofAS) $5 million for failing to report over-the-counter (OTC) options positions to the Large Options Positions Reporting system (LOPR) in more than 7.4 million instances, including 26 positions that were over the applicable OTC position limit, and related supervisory failures.
The matter originated from FINRA’s Trading and Financial Compliance Examinations Group’s identification of the issue through the group’s review of OTC exercise limits.
FINRA Rule 2360 requires member firms to report large options positions to the LOPR, which FINRA uses to surveil for potentially manipulative behavior, including attempts to corner the market in the underlying equity, leverage an option position to affect the price, or move the underlying equity to change the value of a large option position. The accuracy of LOPR reporting is essential to FINRA’s surveillance, and is particularly important with respect to the OTC options market because there is no independent source of data for regulators to review OTC options activity.
Between January 2009 and October 2020, BofAS failed to report OTC options positions to the LOPR in more than 7.4 million instances, in violation of Rule 2360 as well as Rule 2010 (Standards of Commercial Honor and Principles of Trade). Twenty-six of the unreported positions were also over the applicable OTC position limit of either 25,000 or 50,000 contracts. In addition, FINRA found that from January 2014 through October 2020, the firm’s supervisory system was not reasonably designed to comply with its LOPR reporting obligations, a violation of FINRA Rules 3110 (Supervision) and 2010. Among other things, the firm did not have an effective system to detect whether there were positions that should have been reported to the LOPR but were not.
“FINRA relies on accurate reporting of transactions in order to maintain the integrity of the markets,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement. “BofAS’s failure to report millions of OTC options positions prevented FINRA from carrying out that core function for transactions that carry substantial risks.”
In settling this matter, BofAS consented to the entry of FINRA’s findings, without admitting or denying the charges. In addition to the fine, the firm agreed to a penalty of a censure and a requirement that an officer and principal of the firm certify by Oct. 31, 2022, that BofAS has established, maintains and enforces supervisory procedures reasonably designed to achieve compliance with FINRA Rule 2360.
About FINRA
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
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Contacts
Ray Pellecchia (212) 858-4387
