FSA Fines Three Firms for Poor Transaction Reporting Practices
April 8, 2010
The Financial Services Authority has fined Credit Suisse, Getco and Instinet Europe $6.37 million for failing to provide accurate and timely data on transaction reports that could help detect market abuse.
The United Kingdom’s securities regulator said that Credit Suisse would pay $2.7 million; Getco, a privately-held market maker would pay $2.1 million and Instinet Europe, an agency brokerage owned by Nomura Holdings, would pay $1.6 million.
Credit Suisse failed to report about 40 million transactions that it executed between November 2007 and November 2008. Of those, 30 million were equity trades executed on the London Stock Exchange.
Getco did not accurately report data for 46.3 million trades, including nearly 32 million trades executed on the LSE.
The charges against Instinet Europe appeared to be narrower: for late reporting and for errors in 22.1 million transactions between April 2007 and June 2009 which included “netting of many trades into a few reports.”
Under the European Markets in Financial Instruments Directive (MiFID), buy- and sell-side firms must forward transaction reports on bonds, exchange-listed equities and all derivative transactions to regulators in their home market or elsewhere. Reports must be delivered within one day of the execution of trades. The reports are more detailed versions of typical intraday trade reports.
The mandated reports must include not only an identification code of the security or financial contract involved, but also a description of the transaction, where it was traded and each firm trading it. Firms can send the reports to regulators directly, through the trading venue or through an accredited organization.
But European nations, including the United Kingdom, have been struggling with transaction reporting ever since MiFID was adopted in late 2008. The latest FSA fines come about seven months after the FSA imposed a record fine of $3.7 million on Barclays for not accurately reporting 57.5 million trades.
“The data is vital in our efforts to combat financial crime and we will continue to pursue firms that fail to provide quality data,” said Alexander Justham, director of markets at the FSA. “The standard of regulatory reporting by these firms fell far short of what the FSA expects and requires.”
The FSA said that the three firms in this latest round of fines failed repeated reminders during 2007 and 2008 to review their transaction data regularly. However, the firms cooperated fully with the regulator’s investigation and have taken steps to improve their processes, resolve errors and resubmit reports to the FSA.
Two operations executives at brokerage firms in London with knowledge of how Credit Suisse, Getco and Instinet Europe operate said that Credit Suisse relied on its own transaction reporting system while the other two are using third-party providers. It remains to be seen whether Credit Suisse’s fine will affect its standing with the Financial Services Authority as an accredited reporting mechanism (ARM). An ARM sends transaction reports to regulators and earns fees for its service.
The London brokerage executives could not identify which external transaction reporting services are being used by Getco and Instinet Europe but said that as a rule of thumb an ARM cannot validate the accuracy of the data appearing on the transaction reports which is typically collated from a middle or back-office settlement platform. The ARM only passes the data along.
