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Anti-Intimidation/Coordination—Failure to Comply with Rule Requirements
NASD Conduct Rule 2110 and IM-2110-5
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Principal Considerations in Determining Sanctions
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Monetary Sanction
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Suspension, Bar or Other Sanctions
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See Principal Considerations in Introductory Section
1. Whether the behavior was collusive or part of a larger manipulation.
2. Whether the behavior attempted to affect or actually affected publicly disseminated quotes or otherwise inhibited market transparency.
3. Whether the behavior attempted to or actually resulted in late or inaccurate trade reporting.
4. Whether the behavior attempted to or actually altered market prices.
5. In the case of intimidation or harassment, nature and content of respondent's speech, communications, and/or harassing behavior.
6. The general effect of the behavior on the fair and efficient operation of the securities markets.
7. Whether the behavior was repetitive or a single impulsive action.
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Intimidation/Harassment
Fine of $5,000 to $50,000.
In egregious cases, consider a fine in excess of $50,000.
Coordination
Fine of $10,000 to $100,000.
In egregious cases, consider a fine in excess of $100,000.
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Intimidation/Harassment
In egregious cases, suspend individual respondent in any or all capacities and/or member firm respondent with respect to any or all activities or functions for a period of 10 business days to two years.
In egregious cases involving intimidation, consider barring individual respondent.
Coordination
Suspend individual respondent in any or all capacities and/or member firm respondent with respect to any or all activities or functions for a period of 30 business days to two years.
In egregious cases, consider expelling the member firm and/or barring individual respondent.
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Backing Away
NASD Conduct Rules 2110 and 3320 and IM-33201
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Principal Considerations in Determining Sanctions
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Monetary Sanction2
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Whether respondent offered contemporaneous trades or otherwise remediated the failures to execute.
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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First Action3
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000.4
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years.
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1 This guideline also is appropriate for violations of MSRB Rule G-13.
2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range..
3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
4 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Best Execution—Failure to Comply with Requirements For Best Execution
NASD Conduct Rules 2110 and 23201
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Principal Considerations in Determining Sanctions
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Monetary Sanction2
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Nature of the best execution violation, i.e., whether the execution was at an inferior price or was untimely.
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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Negligent Misconduct
First Action3
Fine of $5,000 to $50,000.
Second Action
Fine of $10,000 to $100,000.
Subsequent Actions
Fine of $10,000 to $200,000.4
Intentional or Reckless Misconduct
Fine of $20,000 to $200,000.
In egregious cases, consider a higher fine in excess of $200,000.
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Negligent Misconduct
In egregious cases, consider suspending the responsible individual in any or all capacities and/or the firm with respect to any or all activities or functions for up to 30 business days.
Intentional or Reckless Misconduct
Suspend responsible individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for a period of 10 business days to two years.
In egregious cases, consider barring the individual and/or expelling the firm.
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1 This guideline may also be appropriate for violations of MSRB Rules G-18 and G-30 that do not involve a dealer's excessive profit, but do involve unfair pricing based on an inattention to market value. See MSRB Notice 2004-3 (Review of Dealer Pricing Responsibilities) (Jan. 26, 2004).
2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range. Adjudicators should order restitution or increase the recommended fine amount by adding the amount of a respondent's financial benefit. In cases involving best execution violations that arose from intentional or reckless misconduct, Adjudicators may consider imposing a set fine amount per violation rather than in the aggregate.
3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
4 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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ECN Display Rule-—Failure to Comply with Rule Requirements
NASD Conduct Rule 2110 and Regulation NMS, Rule 602
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Whether the priced order was a customer order, rather than an order entered for the account of the market maker.
2. Whether the priced customer order was executed during the period of non-compliance, while other transactions were executed in the marketplace at prices equal to or better than that priced order.
3. Evidence of significant adverse impact on market-price discovery or transparency that occurred because the order was not displayed at all, was displayed only after long delay, or was displayed in a grossly incorrect manner.
4. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000.3
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Failure to Display Minimum Size in Nasdaq Securities, CQS Securities, and OTC Bulletin Board® Securities
NASD Conduct Rule 2110 and Marketplace Rules 4613 and 6750
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Nature and extent of disqualified person's activities and responsibilities.
2. Whether Form MC-400 application was pending.
3. Whether disqualification resulted from financial and/or securities misconduct.
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions3
Fine of $10,000 to $100,000.
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In egregious cases, consider suspending the firm with respect to any or all activities or functions for up to 20 business days and/or suspending the responsible individual in any or all capacities for up to 20 business days.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Trade Reporting and Compliance Engine (TRACE) - Late Reporting; Failing to Report; False, Inaccurate or Incomplete Reporting
NASD Systems & Programs Rules 6230; Conduct Rule 21101
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Principal Considerations in Determining Sanctions
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Monetary Sanction2
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section3
Extent to which violative conduct affected market transparency, the dissemination of trade information, or the regulatory audit trail.
While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
Whether respondent violated rule requirements during an extended period of days. (Adjudicators should treat as aggravating the fact that a respondent's failure to report or incorrect reporting occurred for more than one week. Adjudicators should treat as egregious misconduct a respondent's failing to report for several weeks.)
Whether a reporting violation was readily apparent from a review of FINRA's TRACE Web site (or MSRB's Web site for violations of MSRB Rule G-14).
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For All Types of Violations
First Action4
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000.5
In all egregious cases, whether a first, second, or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second, or subsequent action. Also consider imposing the fine on a "per violation" basis.
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For All Types of Violations
Firm
In egregious cases, consider a suspension (of up to two years) or expulsion of the firm.
Responsible Individual
Consider suspending the responsible individual in any or all capacities for up to 30 business days. In egregious cases, consider a lengthier suspension (of up to two years) or a bar.
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1 This Guideline also is appropriate for violations of MSRB Rule G-14 AND G-17.
2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
3 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.
4 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
5 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
6 In cases in which the respondent does not detect a reporting failure or violation that would have been apparent from a routine review of data such as, for example, transaction reporting cards on FINRA's TRACE Web site or MSRB's Web site, Adjudicators should consider the respondent's violations to be egregious.
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Limit Order Display Rule—Failure to Comply with Rule Requirements
NASD Conduct Rule 2110 and Regulation NMS, Rule 604
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Whether customer limit order was executed during the period of non-compliance and whether other transactions were executed at prices equal to or better than that customer limit order.
2. Whether misconduct had a significant adverse impact on market-price discovery or transparency.
3. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000. 3
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Limit Order Protection Rule—Failure to Comply with Rule Requirements
NASD Conduct Rule 2110 and IM 2110-2
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Whether respondent traded ahead of and/or failed to execute a customer limit order.
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000. 3
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Locked/Crossed Market—Failure to Comply with Rule Requirements
NASD Conduct Rule 2110 and Marketplace Rule 4613
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Whether the locked/crossed market affected the market at a particularly sensitive time, such as at the market open, at commencement of secondary trading, or on an expiration date.
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000. 3
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Marking The Close or Open
NASD Conduct Rules 2110 and 3310
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Principal Considerations in Determining Sanctions
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Monetary Sanction
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Whether the misconduct resulted in protecting a securities position or enhancing size.
2. Whether respondent received a benefit from the misconduct, including but not limited to increased valuation of inventory, avoidance of margin calls or affecting month-end performance.
3. Whether the activity affected the market at a particularly sensitive time, such as on an expiration date.
4. Whether the misconduct was an isolated incident involving one stock or a systemic pattern of behavior involving multiple stocks.
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Fine of $25,000 to $200,000.
In egregious cases, consider a fine in excess of $200,000.
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Negligent Misconduct
Suspend individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for up to 30 business days.
Intentional or Reckless Misconduct
Suspend individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for up to two years.
In egregious cases, consider barring the individual and/or expelling the firm.
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Options Exercise and Positions Limits—Failure to Comply with Rule Requirements
NASD Conduct Rules 2110 and 2860
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000. 3
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or prohibiting the firm from conducting options transactions.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Options Positions Reporting—Late Reporting and Failing to Report
NASD Conduct Rules 2110 and 2860(b)(5)
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Principal Considerations in Determining Sanctions1
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Monetary Sanction2
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Size of the positions not reported.
2. Whether respondent violated rule requirements during an extended period of days. (Adjudicators should treat as aggravating the fact that a respondent's failure to report or incorrect reporting occurred for more than one week. Adjudicators should treat as egregious misconduct a respondent's failure to report for several weeks.)
3. Evidence of respondent's potential for benefit or monetary gain
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Late Reporting and Failing to Report
First Action3
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000. 4
In all egregious cases, whether a first, second, or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second, or subsequent action. Also consider imposing the fine on a "per violation" basis.
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Failure to Report
In egregious cases, consider suspending the responsible individual in any or all capacities for up to two years. Also consider suspending the firm from conducting options transactions for up to two years or barring the firm from conducting options transactions.
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1 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.
2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
4 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Order Audit Trail System (OATS)—Late Reporting; Failing to Report; False, Inaccurate, or Misleading Reporting; and Clock Synchronization Failure
NASD Systems and Programs Rules 6950 Through 6957
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section2
1. Nature of OATS reporting violation.
2. Extent to which violative conduct affected the regulatory audit trail.
3. Whether violation occurred over an extended period of days.
4. Whether reporting violation was readily apparent from a review of FINRA's OATS Website. 4
5. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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Late Reporting, Failing to Report, False, Inaccurate or Misleading Reporting
First Action3
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000.5
In all egregious cases, whether a first, second, or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second, or subsequent action.
Failure to Synchronize Clocks
First Action Fine of $5,000 to $10,000.
Subsequent Actions
Fine of $10,000 to $50,000.5
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For All Types of Violations
Firm
Subsequent Actions
Consider suspending the firm with respect to any or all activities or functions for up to 30 business days.
In egregious cases, consider a lengthier suspension (of up to two years) or expulsion of the firm.
Individual
Subsequent Actions
Consider suspending the responsible individual in any or all capacities for up to 30 business days.
In egregious cases, consider a lengthier suspension (of up to two years) or a bar.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.
3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.viii. quality of marketsFailure to Report and Inaccurate or Misleading Reporting.
4 In cases in which the respondent fails for more than one week to detect a failure to report that would have been apparent from a review of data on the OATS Website, Adjudicators should consider the respondent's violations to be egregious.
5 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Passive Market Making Violations
NASD Conduct Rule 2110 and Regulation M
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $50,000.
Subsequent Actions
Fine of $10,000 to $100,000.3
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In egregious cases, consider suspending responsible individual in any or all capacities for up to two years or barring responsible individual. Also consider suspending the firm with respect to any or all activities or functions for up to two years.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During A Trading Halt
NASD Conduct Rules 2110 and 33401
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Principal Considerations in Determining Sanctions
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Monetary Sanction
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
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Fine of $5,000 to $50,000.
In egregious cases, consider a fine in excess of $50,000.
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.
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1 This Guideline also is appropriate for violations of MSRB Rule G-13.
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Reports of Execution Quality and Order Routing
Regulation NMS, Rules 605 & 606
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section3
1. Whether respondent violated rule requirements during a period of months. 4
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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First Action2
Fine of $10,000 to $20,000.
Second Action
Fine of $20,000 to $50,000.
Subsequent Actions
Fine of $20,000 to $100,000.5
In all egregious cases, whether a first, second, or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second, or subsequent action. Also consider imposing the fine on a "per violation" basis.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time should be given more weight than less recent events.
3 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.
4 Adjudicators should treat as aggravating the fact that a respondent's failure to report or incorrect reporting occurred for more than one month.
5 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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Trade Reporting—Late Reporting; Failing to Report; False, Inaccurate, or Misleading Reporting
NASD Conduct Rule 2110 and Equity Trade Reporting Rules
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Principal Considerations in Determining Sanctions
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Monetary Sanction1
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Suspension, Bar, or Other Sanctions
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See Principal Considerations in Introductory Section
1. Nature of trade reporting violation.
2. Whether violative conduct affected market-price discovery data.
3. Whether operational problems caused delayed reports.
4. Whether respondent violated rule requirements over an extended period of days.
5. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
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First Action2
Fine of $5,000 to $10,000.
Second Action
Fine of $10,000 to $100,000.
Subsequent Actions
Fine of $5,000 to $100,000.3
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In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending responsible individual in any or all capacities for up to two years.
Also consider expelling the firm and/or barring the responsible individual.
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1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators my consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.
2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time should be given more weight than less recent events.
3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.
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