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Market Integrity

Fraud

Heightened Threat of Fraud

FINRA alerts member firms to a rising trend in the fraudulent transfer of customer accounts through the Automated Customer Account Transfer Service (ACATS), an automated system administered by the National Securities Clearing Corporation (NSCC), that facilitates the transfer of customer account assets from one firm to another.

This Notice provides an overview of how bad actors effect fraudulent transfers of customer accounts using ACATS (referred to as ACATS fraud), lists several existing regulatory obligations that may apply in connection with ACATS fraud, and provides contact information for reporting the fraud. As FINRA continues to gather additional information related to ACATS fraud, FINRA is committed to providing guidance, updates and other information to help member firms stay informed about the latest developments, and will supplement this Notice, as appropriate.

• FINRA Regulatory Notice 22-21 (October 6, 2022): FINRA Alerts Firms to Recent Trend in Fraudulent Transfers of Accounts through ACATS

 

Digital Signatures

FINRA has received an increasing number of reports regarding registered representatives and associated persons (representatives) forging or falsifying customer signatures, and in some cases signatures of colleagues or supervisors, through third-party digital signature platforms. Firms have, for example, identified signature issues involving a wide range of forms, including account opening documents and updates, account activity letters, discretionary trading authorizations, wire instructions and internal firm documents related to the review of customer transactions. These types of incidents underscore the need for member firms that allow digital signatures to have adequate controls to detect possible instances of signature forgery or falsification. To help firms address the risks these signature forgeries and falsifications present, FINRA is sharing information in this Notice about:

  • relevant regulatory obligations;
  • forgery and falsification scenarios firms have reported to FINRA; and
  • methods firms have used to identify those scenarios.

• FINRA Regulatory Notice 22-18 (August 3, 2022): FINRA Reminds Firms of Their Obligation to Supervise for Digital Signature Forgery and Falsification

Prohibited Practices

FINRA Sanction Guidelines

The NAC has revised FINRA’s Sanction Guidelines, which guide FINRA adjudicators in developing remedial sanctions for violations of the securities rules. These revisions were based on a review to ensure that the guidelines accurately reflect the levels of sanctions imposed in FINRA disciplinary proceedings. The revisions tailor sanctions to differentiate between types of respondents and modify the Sanction Guidelines in the following ways:

  • split each current guideline into separate guidelines for individuals and firms;
  • create separate fine ranges for small and mid-size or large-size firms;
  • remove the upper limit of the fine ranges for mid-size and large-size firms for select guidelines;
  • create Anti-Money Laundering guidelines;
  • add additional discussion of non-monetary sanctions for firms;
  • introduce single fine ranges for all actions in the Quality of Markets guidelines and other select guidelines;
  • establish $5,000 as the minimum low end for all firm fine ranges; and
  • delete select guidelines.


• FINRA Regulatory Notice 22-20 (September 29, 2022):The National Adjudicatory Council (NAC) Revises the Sanction Guidelines

Trade Practices

FINRA Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend FINRA Rule 6120 (Trading Halts)

FINRA is proposing to amend FINRA Rule 6120 (Trading Halts) to conform to recent amendments to the NMS plans governing the collection, consolidation and dissemination of quotation and transaction information for NMS stocks and to make technical and clarifying changes to the rule.

• SEC Release No. 34-95191 (June 30, 2022): Notice of filing and immediate effectiveness of a proposed rule change to amend FINRA Rule 6120 (Trading Halts) to conform to recent amendments to the SIP Plans and to Make Technical and Clarifying Changes to the Rule

 

Order Granting Approval of a Proposed Rule Change to Amend the Provisions of NYSE Rule 7.35B

Effective June 10, 2022, the NYSE amended Rule 7.35B relating to the cancellation of Market-on-Close (“MOC”), Limit-on-Close (“LOC”) and Closing Imbalance Offset (“Closing IO”) Orders before the NYSE Closing Auction. As a result of the change, on days when Core Trading Hours end at 4 p.m. ET, MOC, LOC, and Closing IO Orders will no longer be cancelable or changeable after 3:50 p.m.

Former NYSE Rule 7.35B(f)(2) provided that, between the Closing Auction Imbalance Freeze Time and two minutes before the scheduled end of the Core Trading Hours, MOC, LOC, and Closing IO Orders could be canceled, replaced or reduced in size only to correct a Legitimate Error. In addition, with limited exceptions under the prior rule, a request to cancel, replace, or reduce in size a MOC, LOC, or Closing IO Order entered two minutes or less before the scheduled end of the Core Trading Hours would be rejected. NYSE Rule 7.35B(f)(2) now specifies that any requests to cancel, replace, or reduce in size a MOC, LOC, or Closing IO Order that are entered between the beginning of the Closing Auction Imbalance Freeze and the scheduled end of Core Trading Hours are to be rejected. Thus, a request to cancel, replace, or reduce in size a MOC, LOC, or Closing IO Order will now be rejected unless it is received by the Exchange before the beginning of the Closing Auction Imbalance Freeze (i.e., ten minutes prior to the scheduled end of Core Trading Hours), even if the cancellation, replacement, or reduction in size is entered to correct a Legitimate Error.

• NYSE RM-22-08 (July 17 2022): Order Granting Approval to Amend the Provision of NYSE Rule 7.35B

Trade Reporting

(New) FINRA Adopts Amendments to Require Reporting of Transactions in U.S. Dollar-Denominated Foreign Sovereign Debt Securities to TRACE

FINRA has adopted amendments to the Rule 6700 Series to require firms to report transactions in U.S. dollar-denominated foreign sovereign debt securities to TRACE. “Foreign sovereign debt security” is defined as a debt security that is issued or guaranteed by the government of a foreign country, any political subdivision of a foreign country or a supranational entity. Transaction reports in U.S. dollar-denominated foreign sovereign debt securities will not be subject to public dissemination.

Transactions in U.S. dollar-denominated foreign sovereign debt securities generally will be subject to a same-day reporting requirement. Specifically, reportable TRACE transactions in U.S. dollar-denominated foreign sovereign debt securities executed on a business day at or after 12:00 a.m. Eastern Time (ET) through 5:00 p.m. ET must be reported the same day during TRACE system hours. Transactions executed on a business day after 5:00 p.m. ET but before the TRACE system closes must be reported no later than the next business day (T+1) during TRACE system hours, and, if reported on T+1, designated “as/of” and include the date of execution. Firms that wish to report transactions in U.S. dollar-denominated foreign sovereign debt securities on an immediate basis may do so. These amendments become effective date on November 6, 2023.

 

(New) FINRA Adopts Enhancements to TRACE Reporting for U.S Treasury Securities

FINRA has adopted amendments to Rule 6730 (Transaction Reporting) to: (i) require members to report transactions in U.S. Treasury securities to FINRA’s Trade Reporting and Compliance Engine (TRACE) as soon as practicable but no later than 60 minutes from the time of execution; and (ii) require members to report electronically executed transactions in U.S. Treasury securities to TRACE in the finest increment captured by the system used to execute the transaction, subject to an exception for members with limited trading volume in U.S. Treasury securities. FINRA is also revising its TRACE Frequently Asked Questions (FAQs) to standardize price reporting for Treasury bills and Floating Rate Notes (FRNs) by requiring all transactions to be reported using the dollar price. The amendments to reduce the trade reporting timeframe for transactions in U.S. Treasury securities will take effect on May 15, 2023. The amendments related to the granularity of execution timestamps, as well as the revisions to the TRACE FAQs to standardize price reporting, will take effect on November 6, 2023.

 

Exemption From Trade Reporting Obligation for Certain Transactions on Alternative Trading Systems

FINRA has adopted amendments to Rule 6732 (Exemption from Trade Reporting Obligation for Certain Transactions on an Alternative Trading System) to expand the scope of the exemption to include eligible ATS transactions that involve only one member (other than the ATS). As amended, a member ATS may apply for the exemption for transactions between a member subscriber and a non-member entity (e.g., a bank). The amendments to Rule 6732 become effective on October 3, 2022.

 


FINRA Adopts Amendments to TRACE Reporting Rule to Require Identification of Portfolio Trades

FINRA has adopted amendments to Rule 6730 (Transaction Reporting) to require members to append a modifier to a corporate bond trade that is part of a portfolio trade when reporting to FINRA’s Trade Reporting and Compliance Engine (TRACE). The amendments to Rule 6730 become effective on May 15, 2023.