Barclays Capital Inc has agreed to pay a $2.5 million fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
The settlement concerns alleged violations of FINRA rules regarding reporting to the LOPR.
FINRA requires member firms to report large options positions to the the Large Options Positions Reporting (LOPR) system. FINRA uses LOPR information to identify holders of large options positions and to surveil for potentially manipulative behaviour, including attempts to corner the market in the underlying equity, leverage an option position to affect the price, or move the underlying equity to change the value of a large option position.
FINRA Rule 2360(b)(5) requires member firms to report to the LOPR each customer or firm account that, acting alone or in concert, has established an aggregate position of 200 or more option contracts on the same side of the market covering the same underlying security or index. The report must identify the account holder and the total number of option contracts for each options class comprising the reportable position and must include other information as prescribed by FINRA.
From January 2011 through December 2022, Barclays Capital failed to report, or inaccurately reported, OTC options positions to the LOPR in approximately 4.3 million instances. These reporting violations stemmed from four separate coding errors, which spanned from four years to approximately eight years.
From 2011 through 2022, Barclays Capital failed to establish and maintain a supervisory system reasonably designed to achieve compliance with FINRA Rule 2360(b)(5).
First, from January 2011 through September 2019, the firm’s supervisory system and procedures did not include reviews to determine whether the firm properly aggregated all positions as required.
Second, from March 2011 through April 2019, the firm only reviewed the positions that it reported, and did not conduct a reasonable supervisory review to ensure that all reportable positions were, in fact, reported.
Third, from January 2014 through October 2021, the firm did not have a reasonably designed supervisory review to determine whether it reported positions with the correct trade date.
Lastly, from January 2018 through December 2022, the firm did not have a reasonably designed supervisory review to determine whether it reported accurate quantities of OTC option positions held in firm accounts.
As a result of these supervisory failures, Barclays Capital did not detect and correct the flawed aggregation logic, the improper suppression of reportable ETF option positions, and the coding errors concerning the effective dates and reported quantities of certain positions for over ten years.
In determining the appropriate sanctions in this matter, FINRA considered, among other factors, that Barclays Capital: (1) identified, self-reported to FINRA, and remediated the issues described in Section A.2. above concerning its erroneous aggregation logic and positions reported with either incorrect trade dates or incorrect quantities; (2) determined the number of OTC LOPR positions reported with inaccurate quantities going back to January 2018; and (3) implemented numerous enhancements to its supervision, surveillance, and governance structure concerning LOPR.
On top of the fine, the respondent also consents to the imposition of a censure.
