FINRA Fines E*TRADE $350K for Surveillance Failures

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Electronic trading platform E*TRADE, a subsidiary of Morgan Stanley, has been slapped with a $350,000 fine, along with a censure order, by the Financial Industry Regulatory Authority (FINRA) for failures in the establishment and maintenance of supervisory systems.

Announced on Tuesday, the self-regulatory agency alleged multiple violations on the part of the American
 
 trading platform 
. First, it failed to detect manipulative trading due to the lapses in the supervisory systems.

Though the platform used multiple surveillance reports between December 2016 and November 2021 to identify the potential wash trades and prearranged trades, the used parameters were heavily restricted to detect such fraudulent activities.

Additionally, E*TRADE was blamed for modifying the parameters in its surveillance reports that restricted the detection of potentially marking-the-close activity, especially in lower-priced securities. Further, the agency questioned the shortcomings of the design of the surveillance system that could not efficiently identify the artificially increased or decreased price of thinly traded stocks.

“E*TRADE failed to establish and maintain a supervisory system that was reasonably designed to achieve
 
 compliance 
with applicable federal securities laws and regulations and FINRA rules relating to potentially manipulative trading,” the announcement stated.

Order Accepted

The trading platform has already agreed to the order of FINRA, including the monetary penalty. This will restrict the agency from bringing further charges on the trading platform based on the mentioned allegations.

Out of the total fine, $144,500 is payable to FINRA, the official notice detailed.

“[The Letter of Acceptance, Waiver, and Consent (AWC)] is submitted on the condition that, if accepted, FINRA will not bring any future actions against Respondent alleging violations based on the same factual findings described in this AWC,” the notice added.

“Respondent agrees to pay the monetary sanction upon notice that this AWC has been accepted and that such payment is due and payable.”

Electronic trading platform E*TRADE, a subsidiary of Morgan Stanley, has been slapped with a $350,000 fine, along with a censure order, by the Financial Industry Regulatory Authority (FINRA) for failures in the establishment and maintenance of supervisory systems.

Announced on Tuesday, the self-regulatory agency alleged multiple violations on the part of the American
 
 trading platform 
. First, it failed to detect manipulative trading due to the lapses in the supervisory systems.

Though the platform used multiple surveillance reports between December 2016 and November 2021 to identify the potential wash trades and prearranged trades, the used parameters were heavily restricted to detect such fraudulent activities.

Additionally, E*TRADE was blamed for modifying the parameters in its surveillance reports that restricted the detection of potentially marking-the-close activity, especially in lower-priced securities. Further, the agency questioned the shortcomings of the design of the surveillance system that could not efficiently identify the artificially increased or decreased price of thinly traded stocks.

“E*TRADE failed to establish and maintain a supervisory system that was reasonably designed to achieve
 
 compliance 
with applicable federal securities laws and regulations and FINRA rules relating to potentially manipulative trading,” the announcement stated.

Order Accepted

The trading platform has already agreed to the order of FINRA, including the monetary penalty. This will restrict the agency from bringing further charges on the trading platform based on the mentioned allegations.

Out of the total fine, $144,500 is payable to FINRA, the official notice detailed.

“[The Letter of Acceptance, Waiver, and Consent (AWC)] is submitted on the condition that, if accepted, FINRA will not bring any future actions against Respondent alleging violations based on the same factual findings described in this AWC,” the notice added.

“Respondent agrees to pay the monetary sanction upon notice that this AWC has been accepted and that such payment is due and payable.”

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