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Regulatory Sanctions

WWW: HSBC Pays $575K for Over-Advertising Trading Volume - FINRA

April 5, 2017

[Photo: by DullHunk (Duncan Hull / Flickr][Photo:  by DullHunk (Duncan Hull) / Flickr]


Trading volume is a critical measure for broker-dealers that seek to attract order flow from buyside firms. FINRA knows this, and it brings a hard-nosed attitude to its examinations of all advertised claims. There's little or no 'wiggle room' for firms that overstate their statistics - particularly when the errors are committed over a prolonged period. That's what happened in this FINRA case. 


HSBC Securities (USA) agreed to pay $575K and to revise its WSPs to settle FINRA that it overstated its executed trade volume in advertisements.


ABOUT THE FIRM.    HSBC has been a FINRA member since 1987. The above-noted violative actions are similar in nature to a settlement that HSBC entered into on 6/10/14. In that case, FINRA charged the firm with over-advertising its trade volume during the period, 2/22/10 through 6/2/11.


FINRA’S SPECIFIC FINDINGS.    FINRA’s Market Quality Team in Market Regulation reviewed HSBC’s trade volume advertisements as transmitted to Bloomberg during the period November 2009 through September 2014.


Bloomberg is a private service provider that allows certain subscribers, including B/D’s, to advertise intra-day and historical trading volume in a particular security. Buyside traders use the advertisements to help determine which brokers have recently had access to the greatest amount of liquidity in a particular security and, therefore, are most likely to execute the contra side of their order with the minimum market impact. Sell-side traders use trade advertisements to measure their market share performance in comparison to their peers in a particular security or based on an aggregate level.


HSBC utilized an order management system ("OMS ') which allowed the firm to designate certain accounts to automatically transmit trade volume to Bloomberg for advertisement. In addition to the automatic transmission of trade volume to Bloomberg, HSBC’s OMS platform gave traders the ability to manually enter trade volume for advertising on Bloomberg,


For the review period, FINRA examiners found that HSBC opened a number of accounts with a default setting that resulted in certain trade activity being sent to Bloomberg twice for advertising. The firm’s programming error caused HSBC to over-advertise trade volume executed in at least 30 separate affected trading books during the relevant period. And, based on a sampling of HSBC’s advertised trade volume, FINRA examiners were able to identify 34 securities where the trade volume transmitted to Bloomberg by HSBC for each of those securities substantially exceeded HSBC’s executed trade volume – i.e., by 1.3 million shares.


FINRA examiners also noted that, for a shorter period - between August 2011 and December 2011 - one of HSBC’s traders manually entered trade volume in certain securities for advertising on Bloomberg. Unbeknownst to HSBC, these securities were also being sent to Bloomberg for auto-advertising through the firm’s OMS. By virtue of the trader’s erroneous manual advertisements, HSBC over-advertised its executed trade volume in 42 instances by approximately 8 million shares.


This case was reported in FINRA Disciplinary Actions for March 2017.

For details on this case, go to … FINRA Disciplinary Actions Online, and refer to Case #2013035716601.