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VIII. Quality of Markets [Version up to Mar. 22, 2011]

Extended Hours Trading Risk Disclosure—Failure to Comply With Rule Requirements

FINRA Rule 2265

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the firm failed to provide customer(s) with a risk disclosure statement.
2. Whether the firm provided its customer(s) with an inadequate risk disclosure statement, or furnished the risk disclosure statement to its customer(s) in an untimely manner or a manner not designed to provide actual notice.
3. In all cases, consider the nature, quality and timing of the risk disclosure actually provided to the customer(s).
4. Whether extended-hours trading was appropriate for the affected customer(s).
Fine of $5,000 to $100,000 Consider suspending the responsible individual in any or all capacities for a period of 10 business days to one year.

In egregious cases, particularly cases involving numerous customers, consider suspending for a longer period (of up to two years) or barring the responsible individual and suspending the firm with respect to any or all activities or functions for a period of up to two years.

Anti-Intimidation/Coordination—Failure to Comply With Rule Requirements

FINRA Rules 2010 and 5240

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the behavior was collusive or part of a larger manipulation.
2. Whether the behavior attempted to affect or actually affected publicly disseminated quotes or otherwise inhibited market transparency.
3. Whether the behavior attempted to or actually resulted in late or inaccurate trade reporting.
4. Whether the behavior attempted to or actually altered market prices.
5. In the case of intimidation or harassment, nature and content of the respondent's speech, communications and/or harassing behavior.
6. The general effect of the behavior on the fair and efficient operation of the securities markets.
7. Whether the behavior was repetitive or a single impulsive action.
Intimidation/Harassment

Fine of $5,000 to $50,000.

In egregious cases, consider a fine in excess of $50,000.

Coordination

Fine of $10,000 to $100,000.

In egregious cases, consider a fine in excess of $100,000.
Intimidation/Harassment

In egregious cases, suspend the individual respondent in any or all capacities and/or the member firm respondent with respect to any or all activities or functions for a period of 10 business days to two years.

In egregious cases involving intimidation, consider barring the individual respondent.

Coordination

Suspend the individual respondent in any or all capacities and/or the member firm respondent with respect to any or all activities or functions for a period of 30 business days to two years.

In egregious cases, consider expelling the member firm and/or barring the individual respondent.

Backing Away

FINRA Rules 2010 and 52201

Principal Considerations in Determining Sanctions Monetary Sanction2 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the respondent offered contemporaneous trades or otherwise remediated the failures to execute.
2. While the respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action3
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.4
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years.

1 This guideline also is appropriate for violations of MSRB Rule G-13.

2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

4 If the respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Best Execution—Failure to Comply With Requirements for Best Execution

FINRA Rule 2010 and NASD Rule 23201

Principal Considerations in Determining Sanctions Monetary Sanction2 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Nature of the best execution violation; i.e., whether the execution was at an inferior price or was untimely.
2. While the respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
Negligent Misconduct

First Action3
Fine of $5,000 to $50,000.

Second Action
Fine of $10,000 to $100,000.

Subsequent Actions
Fine of $10,000 to $200,000.4

Intentional or Reckless Misconduct

Fine of $20,000 to $200,000.

In egregious cases, consider a fine in excess of $200,000.
Negligent Misconduct

In egregious cases, consider suspending the responsible individual in any or all capacities and/or the firm with respect to any or all activities or functions for up to 30 business days.

Intentional or Reckless Misconduct


Suspend the responsible individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for a period of 10 business days to two years.

In egregious cases, consider barring the individual and/or expelling the firm.

1 This guideline may also be appropriate for violations of MSRB Rules G-18 and G-30 that do not involve a dealer's excessive profit, but do involve unfair pricing based on an inattention to market value. See MSRB Notice 2004-3 (Review of Dealer Pricing Responsibilities) (Jan. 26, 2004).

2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range. Adjudicators should order restitution or increase the recommended fine amount by adding the amount of a respondent's financial benefit in all cases in which the best execution violation resulted in a quantifiable loss for the customer. In cases involving best execution violations that arose from intentional or reckless misconduct, Adjudicators may consider imposing a set fine amount per violation rather than in the aggregate.

3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

4 If the respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


ECN Display Rule—Failure to Comply With Rule Requirements

FINRA Rule 2010 and Regulation NMS, Rule 602

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the priced order was a customer order, rather than an order entered for the account of the market maker.
2. Whether the priced customer order was executed during the period of non-compliance, while other transactions were executed in the marketplace at prices equal to or better than that priced order.
3. Evidence of significant adverse impact on market-price discovery or transparency that occurred because the order was not displayed at all, was displayed only after long delay, or was displayed in a grossly incorrect manner.
4. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.3
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Failure to Display Minimum Size in NASDAQ Securities, CQS Securities and OTC Bulletin Board Securities

FINRA Rules 2010, 6170 and 6272, and SEC Rule 144A

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar, or Other Sanctions
See Principal Considerations in Introductory Section First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.3
In egregious cases, consider suspending the firm with respect to any or all activities or functions for up to 20 business days and/or suspending the responsible individual in any or all capacities for up to 20 business days.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Limit Order Display Rule—Failure to Comply With Rule Requirements

FINRA Rule 2010 and Regulation NMS, Rule 604

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the customer limit order was executed during the period of non-compliance and whether other transactions were executed at prices equal to or better than that customer limit order.
2. Whether the misconduct had a significant adverse impact on market-price discovery or transparency.
3. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.3
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Limit Order Protection Rule—Failure to Comply With Rule Requirements

FINRA Rule 2010 and NASD IM-2110-2

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether respondent traded ahead of and/or failed to execute a customer limit order.
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.3
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Locked/Crossed Market—Failure to Comply With Rule Requirements

FINRA Rules 2010, 6170 and 6272

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the locked/crossed market affected the market at a particularly sensitive time, such as at the market open, at commencement of secondary trading or on an expiration date.
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.3
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Marking the Close or Open

FINRA Rules 2010 and 5210

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the misconduct resulted in protecting a securities position or enhancing size.
2. Whether the respondent received a benefit from the misconduct, including but not limited to increased valuation of inventory, avoidance of margin calls or affecting month-end performance.
3. Whether the activity affected the market at a particularly sensitive time, such as on an expiration date.
4. Whether the misconduct was an isolated incident involving one stock or a systemic pattern of behavior involving multiple stocks.
Fine of $25,000 to $200,000.

In egregious cases, consider a fine in excess of $200,000.
Negligent Misconduct

Suspend the individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for up to 30 business days.

Intentional or Reckless Misconduct

Suspend the individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for up to two years.

In egregious cases, consider barring the individual and/or expelling the firm.

Options Exercise and Positions Limits—Failure to Comply With Rule Requirements

FINRA Rules 2010 and 2360

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.3
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or prohibiting the firm from conducting options transactions.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Options Positions Reporting—Late Reporting and Failing to Report

FINRA Rule 2010 and 2360(b)(5)

Principal Considerations in Determining Sanctions1 Monetary Sanction2 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Size of the positions not reported.
2. Whether respondent violated rule requirements during an extended period of days. (Adjudicators should treat as aggravating the fact that a respondent's failure to report or incorrect reporting occurred for more than one week. Adjudicators should treat as egregious misconduct a respondent's failure to report for several weeks.)
3. Evidence of respondent's potential for benefit or monetary gain.
Late Reporting and Failing to Report

First Action3
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.4

In all egregious cases, whether a first, second or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second or subsequent action. Also consider imposing the fine on a "per violation" basis.
Failure to Report

In egregious cases, consider suspending the responsible individual in any or all capacities for up to two years. Also consider suspending the firm from conducting options transactions for up to two years or barring the firm from conducting options transactions.

1 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.

2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

4 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Order Audit Trail System (OATS)—Late Reporting; Failing to Report; False, Inaccurate or Misleading Reporting; and Clock Synchronization Failure

FINRA Rules 7400 through 7460

Principal Considerations in Determining Sanctions2 Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Nature of OATS reporting violation.
2. Extent to which violative conduct affected the regulatory audit trail.
3. Whether violation occurred over an extended period of days.
4. Whether reporting violation was readily apparent from a review of FINRA's OATS website.4
5. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
Late Reporting, Failing to Report, False, Inaccurate or Misleading Reporting

First Action3
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.5

In all egregious cases, whether a first, second, or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second, or subsequent action.

Failure to Synchronize Clocks

First Action
Fine of $5,000 to $10,000.

Subsequent Actions
Fine of $10,000 to $50,000.5
For All Types of Violations

Firm


Subsequent Actions
Consider suspending the firm with respect to any or all activities or functions for up to 30 business days.

In egregious cases, consider a lengthier suspension (of up to two years) or expulsion of the firm.

Individual

Subsequent Actions
Consider suspending the responsible individual in any or all capacities for up to 30 business days.

In egregious cases, consider a lengthier suspension (of up to two years) or a bar.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.

3 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

4 In cases in which the respondent fails for more than one week to detect a failure to report that would have been apparent from a review of data on the OATS website, Adjudicators should consider the respondent's violations to be egregious.

5 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Passive Market Making Violations

FINRA Rule 2010 and Regulation M

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.3
In egregious cases, consider suspending responsible individual in any or all capacities for up to two years or barring responsible individual. Also consider suspending the firm with respect to any or all activities or functions for up to two years.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Prohibition on Transactions, Publication of Quotations or Publication of Indications of Interest During a Trading Halt

FINRA Rules 2010 and 52601

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether respondent knew of the trading halt.
Fine of $5,000 to $50,000.

Adjudicators may consider ordering restitution or disgorgement in appropriate cases.

In egregious cases, consider a fine in excess of $50,000.
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.

1 This guideline also is appropriate for violations of MSRB Rule G-13.


Reports of Execution Quality and Order Routing

Regulation NMS, Rules 605 & 606

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section3
1. Whether respondent violated rule requirements during a period of months.4
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action2

Fine of $10,000 to $20,000.

Second Action

Fine of $20,000 to $50,000.

Subsequent Actions

Fine of $20,000
to $100,000.5

In all egregious cases, whether a first, second or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second or subsequent action. Also consider imposing the fine on a "per violation" basis.
 

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time should be given more weight than less recent events.

3 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.

4 Adjudicators should treat as aggravating the fact that a respondent's failure to report or incorrect reporting occurred for more than one month.

5 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Short Sale Violations

FINRA Rules 4560, 7230A and 7330, and Regulation SHO

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. In cases involving short interest reporting, consider the number of months during which the respondent failed to report short interest or reported short interest incorrectly.4
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action2
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.5

In all egregious cases, whether a first, second or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second or subsequent action. Also consider imposing the fine on a "per violation" basis.
If the short-selling customer is not subject to FINRA jurisdiction, in egregious cases or those with evidence of willful misconduct, consider adding the amount of the short-selling customer's "transaction profit"3 to the fine for the executing member and/or associated person. In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible Individual in any or all capacities for up to two years or expelling the firm and/or barring the responsible individual.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

3 "Transaction profit" means the profit that the short-selling customer realized. This amount is separate and distinct from the respondent's financial benefit, as described in General Principle No. 6.

4 Adjudicators should treat as aggravating the fact that a respondent's failure to report or incorrect reporting of short interest occurred for more than one month. A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.

5 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


Trade Reporting and Compliance Engine (TRACE)—Late Reporting; Failing to Report; False, Inaccurate or Incomplete Reporting (continued)

FINRA Rules 2010 and 67301

Principal Considerations in Determining Sanctions Monetary Sanction2 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section3
1. Extent to which violative conduct affected market transparency, the dissemination of trade information, or the regulatory audit trail.
2. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
3. Whether respondent violated rule requirements during an extended period of days. (Adjudicators should treat as aggravating the fact that a respondent's failure to report or incorrect reporting occurred for more than one week. Adjudicators should treat as egregious misconduct a respondent's failing to report for several weeks.)
4. Whether a reporting violation was readily apparent from a review of FINRA's TRACE website (or MSRB's website for violations of MSRB Rule G-14).6
For All Types of Violations

First Action4
Fine of $5,000 to $10,000.

Second Action
Fine of $10,000 to $50,000.

Subsequent Actions
Fine of $10,000 to $100,000.5

In all egregious cases, whether a first, second or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second or subsequent action. Also consider imposing the fine on a "per violation" basis.
For All Types of Violations

Firm

In egregious cases, consider a suspension (of up to two years) or expulsion of the firm.

Responsible Individual

Consider suspending the responsible individual in any or all capacities for up to 30 business days.

In egregious cases, consider a lengthier suspension (of up to two years) or a bar.

1 This guideline also is appropriate for violations of MSRB Rule G-14 AND G-17.

2 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

3 A respondent's delegation of its reporting responsibilities to a third party who caused or contributed to respondent's violation is not an independent basis for mitigation.

4 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time, however, should be given more weight than less recent events.

5 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.

6 In cases in which the respondent does not detect a reporting failure or violation that would have been apparent from a routine review of data such as, for example, transaction reporting cards on FINRA's TRACE website or MSRB's website, Adjudicators should consider the respondent's violations to be egregious.


Trade Reporting—Late Reporting; Failing to Report; False, Inaccurate or Misleading Reporting

FINRA Rule 2010 and Equity Trade Reporting Rules

Principal Considerations in Determining Sanctions Monetary Sanction1 Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Nature of trade reporting violation.
2. Whether violative conduct affected market-price discovery data.
3. Whether operational problems caused delayed reports.
4. Whether respondent violated rule requirements over an extended period of days.
5. While respondents are responsible for the systems that they use and the third-party vendors that they employ, the appropriate level of sanctions will depend on whether the respondent diligently chose, installed, and tested a system that nevertheless malfunctioned; the frequency and thoroughness with which the respondent ensured that the system was operating in compliance with applicable rules; and the care that the respondent exercised in undertaking all necessary steps to correct systems-related malfunctions. The same considerations apply to a respondent that has relied on a third-party vendor's products or services.
First Action2

Fine of $5,000 to $10,000.

Second Action

Fine of $10,000 to $50,000.

Subsequent Actions

Fine of $10,000 to $100,000.3

In all egregious cases, whether a first, second or subsequent action, consider a fine greater than or equal to the high end of the range for a first, second, or subsequent action.
In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or suspending responsible individual in any or all capacities for up to two years.

Also consider expelling the firm and/or barring the responsible individual.

1 In cases in which the violations: (1) involve a pattern or patterns of misconduct; (2) can be quantified by number or percentage; or (3) can be compared to the standard maintained by industry peers, Adjudicators may consider deviating from the fine structure recommended in this guideline for first, second, or subsequent actions. Imposition of monetary sanctions greater than those recommended in this guideline may be particularly appropriate in cases involving violations that occurred during two or more examination or review periods or violations that occurred over an extended period of time. Similarly, in cases in which the respondent acted intentionally or recklessly, and in cases in which the respondent's compliance rate is significantly lower than that of its peers, Adjudicators may impose a monetary sanction in excess of the recommended range.

2 Adjudicators should consider actions concerning violative events that occurred within the three years prior to the misconduct at issue. Events that are more recent in time should be given more weight than less recent events.

3 If respondent's second or subsequent action involves a violation that is less serious than a prior violation, includes conduct that demonstrates that respondent is improving its compliance rate, or involves mitigation that did not exist in a prior action, Adjudicators may consider imposing a fine that is less than the fine imposed in the prior action.


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