Barclays Capital Inc.
Barclays Capital Inc. was fined $2.8 million for inaccurately disclosing its execution capacity, the customer price, or whether the trade was executed on an average price on an estimated 245.4 million confirmations and also recorded an inaccurate market center of execution on an estimated 24.8 million confirmation records. The findings stated that these inaccuracies were caused by underlying issues, each of which persisted for periods ranging from five-and-a-half years to 12 years.
These issues included separate programming issues that collectively caused incorrect capacities, a disclosure drafting error that resulted in inaccurate capacities, a configuration issue that caused incorrect customer prices, a coding change that caused incorrect market centers, and a misunderstanding of regulatory guidance that caused the firm to incorrectly identify trades effected in single executions at single prices as average price executions.
The findings also stated that the firm failed to reasonably supervise its compliance with confirmation requirements. The firm failed to take reasonable steps to timely act upon certain red flags of potential confirmation deficiencies.
In addition, the firm had no supervisory system to review whether its confirmations complied with applicable SEC and FINRA requirements. Due to two FINRA examinations, the firm knew about several of the systemic confirmation accuracy issues and that it had no WSPs related to confirmations. Almost a year later, the firm established a system and procedures to monitor only whether confirmations were delivered but not whether they were accurate. Following another examination, FINRA notified the firm that its WSPs failed to include a review of the accuracy of its confirmations.
The firm later established a supervisory system and WSPs to review the accuracy of its confirmations. The system, which remains in place at the firm today, involves a quarterly review of 18 equities confirmations, including one cash trade confirmation from each of the firm’s unique client order flows. Given that the sample does not account for the different trading scenarios within each client order flow, as well as the fact that the firm issues more than 10 million customer confirmations per quarter for equities transactions, the firm’s review of 18 confirmations per quarter does not reasonably assess its compliance with confirmation requirements.
The findings also included that the firm failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with Rule 605 of Regulation NMS. The firm’s procedures did not require, nor did the firm otherwise conduct, a supervisory review of whether the third-party vendor that produced its Rule 605 reports calculated its statistics in compliance with Rule 605. The firm’s procedures also did not require, nor did the firm otherwise conduct, a supervisory review of whether the vendor categorized the firm’s orders in compliance with Rule 605. The firm began reviewing the vendor’s order categorizations but reviewed too small a sample to reasonably assess for compliance with Rule 605. Although the firm’s Rule 605 reports included hundreds of millions of covered orders, the firm reviewed only 45 covered orders.
