SEC, CFTC Fines Issued for Market Access and Data Reporting Violations

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This was a busy week for the SEC and CFTC in pursuit of enforcement actions for market access and data reporting. The securities and commodities regulators resolved three separate investigations/enforcement actions in these areas.

The Commodity Futures fined Deutsche Bank $2.5 million for issues with its reporting of swap transactions for the past two years. The enforcement action is the first by the CFTC under the Dodd-Frank Act rules on real-time reporting of swaps transactions.

According to a news report, Deutsche Bank failed to report swap transaction cancellations properly. The bank became aware of problems at the end of 2012 but did not investigate or fix it until after the CFTC began investigating in Summer 2014.

The SEC also fined a U.S. subsidiary of Credit Suisse $4.25 million this week for deficient reporting of blue sheet data on customer trades to the securities regulator over a two year period. The SEC discovered the issue by comparing submissions made by certain broker dealers to the data they submitted to the National Securities Clearing Corp.

A Wall Street Journal article this week on an $8 million SEC fine imposed on high-frequency trading firm Latour Trading indicated that the SEC has now brought multiple cases concerning technology glitches recently as it attempts to police market access violations. Latour sent 12 million orders to exchanges between 2010 and 2012 without confirming prices in all of the relevant markets.

As a result, SEC rules to promote the fair and orderly execution of stock trades were not followed. It appears that the software was trading through the national best bid or best offer in violation of Reg NMS. One reason this may have occurred was the elimination of some code by a programmer that altered the way trades were handled by a particular exchange. For problems with their internal controls such as this one, the SEC brought a charge of violation of Rule 15c3-5, which requires them to have a system of risk management controls and supervisory procedures.

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