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FINRA

 

 

FOR RELEASE:
CONTACT:
Monday, October 4, 2004
Nancy Condon 202-728-8379
Herb Perone 202-728-8464

 



NASD Sanctions 18 Firms for Order Audit Trail (OATS) Reporting and Supervision Violations

Washington, D.C.—NASD today announced it has censured and imposed fines totaling more than $1.2 million on 18 firms for violations relating to NASD's Order Audit Trail ("OATS") rules and supervision. The largest single action was against SG Cowen, LLC of New York, NY, which was censured and fined $800,000 for failing to report millions of orders over a four-year period.

 

"The enforcement actions announced today are against a wide range of firms for violations such as missing reports, inaccurate data, and failure to correct data after it had been rejected," said NASD Vice Chairman Mary L. Schapiro. "These actions are part of NASD's ongoing efforts to ensure that the audit trail is complete and accurate. The information reported to OATS enables NASD to recreate the life cycle of an order, substantially enhancing the Nasdaq audit trail and ensuring NASD's ability to conduct effective market surveillance."

 

Compliance with OATS rules is critical to NASD's regulation of the Nasdaq Stock Market. Firms are required by OATS rules to report specific data elements related to the handling and execution of customer orders and certain proprietary orders for Nasdaq securities, and to synchronize their business clocks as required by NASD.

 

Regarding SG Cowen, NASD found that the firm failed to report OATS data for approximately 50 million orders received by the firm's equity derivatives desk between October 1999 and March 2004. The firm developed a system for capturing and reporting OATS data for its equity derivatives desk in 1999. But after operational changes to that system were implemented shortly after the firm began OATS reporting, data generated for the equity derivatives desk was never forwarded to NASD - even though other trading desks at the firm were regularly submitting voluminous OATS reports.

 

Because Cowen did not have an adequate supervisory system, the firm did not discover the problem until late 2003 - four years later. Once it did discover the problem, the firm investigated its source and scope, and reported its findings to NASD in May 2004. The fine against Cowen consists of $500,000 for inadequate supervision and $300,000 for OATS violations. The sanctions against Cowen reflect the extensive failure to report OATS data, the inadequate supervision, the firm's significant disciplinary history and a substantial credit for investigating the matter and bringing it to NASD's attention.

 

The fines imposed total $1,219,000 and involve the following firms:

  • Spear, Leeds & Kellogg, L.P. - censure and a $75,000 fine for late OATS reporting on its own behalf and on behalf of reporting members, and failing to correct or replace rejected OATS reports on its own behalf and on behalf of reporting members.

  • Schwab Capital Markets, L.P. - censure and a $70,000 fine for failing to correct or replace rejected OATS reports, submitting inaccurate OATS data and supervisory deficiencies concerning OATS compliance.

  • Credit Suisse First Boston, L.L.C. - censure and a $50,000 fine for late OATS reporting, failing to correct or replace rejected OATS reports and submitting inaccurate OATS data.

  • Carlin Equities Corporation - censure and a $35,000 fine for late OATS reporting, failing to correct or replace rejected OATS reports, submitting inaccurate and/or incomplete OATS data and supervisory deficiencies concerning OATS compliance.

  • FutureTrade Securities, L.L.C. - censure and a $35,000 fine for failing to correct or replace rejected OATS reports, submitting inaccurate OATS data and supervisory deficiencies concerning OATS compliance.

  • Pulse Trading, Inc. - censure and a $20,000 fine for failing to submit required OATS data, late OATS reporting and supervisory deficiencies concerning OATS compliance.

  • Scottrade, Inc. - censure and a $16,000 fine for failing to correct or replace rejected OATS reports and supervisory deficiencies concerning OATS compliance.

  • Delta Asset Management Company, L.L.C. - censure and a $15,000 fine for failing to submit required OATS data, late OATS reporting and supervisory deficiencies concerning OATS compliance.

  • Deutsche Bank Securities, Inc. - censure and a $15,000 fine for late OATS reporting and supervisory deficiencies concerning OATS compliance.

  • Doyle, Miles & Co., L.L.C. - censure and a $12,500 fine for late OATS reporting and supervisory deficiencies concerning OATS compliance.

  • Quantlab Securities, L.P. - censure and a $12,500 fine for failing to report OATS data and supervisory deficiencies concerning OATS compliance.

  • BNY Brokerage, Inc. - censure and a $12,000 fine for failing to correct or replace rejected OATS reports and supervisory deficiencies concerning OATS compliance.

  • Index Securities, LLC - censure and an $11,000 fine for failing to correct or replace rejected OATS reports and supervisory deficiencies concerning OATS compliance.

  • Mid-Atlantic Capital Corporation - censure and a $10,000 fine for late OATS reporting and supervisory deficiencies concerning OATS compliance.

  • Options Trading Associates, LLC - censure and a $10,000 fine for improperly formatted OATS data and supervisory deficiencies concerning OATS compliance.

  • Transcend Capital, LP - censure and a $10,000 fine for late OATS reporting and failing to submit required OATS data.
     
  • UBS Securities, L.L.C. - censure and a $10,000 fine for submitting inaccurate and/or incomplete OATS data.

In concluding these settlements, the firms neither admitted nor denied the charges.

 

Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.8 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business — from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.