finra

FINRA

 

For Release:
Contacts:
Thursday, August 3, 2006
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464

 



NASD Fines BRUT $2.2 Million for Publishing Erroneous Execution Quality Reports, Other Violations

Washington, D.C. —  NASD announced today that it has ordered New York's BRUT, LLC to pay $2.2 million for rule violations relating to publication of erroneous order execution quality reports, backing away from the firm's posted quotes, failure to maintain two-sided quotations, failure to comply with the rules applicable to trade-throughs and locked and/or crossed markets, non-retention of emails, OATS deficiencies and inadequate supervision. In addition to the fine, BRUT agreed to revise certain of the firm's written supervisory procedures within 30 days.

BRUT's erroneous order execution reports related to orders sent to the firm's ECN. BRUT's share of monthly Nasdaq trading volume amounted, at times, to more than 13 percent of Nasdaq executions. "Monthly order execution reports provide data that must be made public under federal securities regulations," said NASD Senior Executive Vice President Stephen Luparello. "BRUT's inaccurate reports compromised the ability of the investing public and other market participants to accurately assess execution quality and compare venues for execution."

NASD found that from October 2001 - shortly after the requirement to publish order execution reports took effect - through July 2005, BRUT published execution reports that contained critical errors. Specifically, when subscribers of BRUT's ECN entered orders that included a "reserve size component," BRUT's treatment of these reserve size orders resulted in execution reports that did not include the full size of each such order. Instead, after each portion of a reserve size order was executed, the newly displayed portion of the original order was counted as a separate order in BRUT's execution reports. The incorrect treatment of reserve size orders impacted BRUT's reported order size, reduced the order execution time, and increased the number of covered orders.

The effect of the errors contained in BRUT's execution reports varied. Certain errors may have resulted in certain execution quality statistics appearing to be better than was actually the case. Other errors may have resulted in execution quality statistics appearing to be either better or worse than was actually the case.

NASD also found other regulatory violations by the firm. At certain times between April 2004 and June 2005, BRUT failed to execute certain orders presented to the firm at its published quotation in an amount up to its published quotation size. In addition, in certain instances between April 2003 and June 2005, BRUT failed as an ITS/CAES market maker to maintain a continuous two-sided quotation for certain securities. Further, in certain instances between September 2003 and September 2005, BRUT submitted millions of Order Audit Trail System ("OATS") reports that were rejected, inaccurate, incomplete, improperly formatted, or late. Finally, BRUT failed to implement effective supervisory systems and written supervisory procedures reasonably designed to detect and prevent the kinds of violations detailed above.

In settling this matter, BRUT neither admitted nor denied the charges, but consented to the entry of NASD's findings. 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 2005, members of the public used this service to conduct more than 4.3 million searches for existing brokers or firms and requested more than 194,000 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 (800) 289-9999.

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity 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 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.