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Electronic Brokerage Records - Opening Another Can of WORMS
by Howard Haykin
Virtu Financial Capital Markets agreed to pay a $175K fine to settle FINRA charges that it failed to maintain electronic brokerage records related to millions of market-making transactions in ”write one, read many” (WORM) format. A lower fine was imposed after considering, among other things, the firm’s revenue and financial resources.
FINRA FINDINGS. Virtu, a New York, NY-based FINRA member firm since 1999, has some 46 registered reps who operate out of 3 branch offices. In early 2012, Virtu began transitioning from a WORM-compliant electronic system for storing its electronic brokerage records to a new electronic storage system. Unfortunately, the Firm encountered difficulties during the transition to the new storage system and numerous violations and deficiencies cropped up over the next 4 years:
► Failed to Retain Electronic Records in WORM Format. As a result of difficulties during the transition, the firm failed to maintain in WORM format electronic brokerage records related to approximately 46 million market-making transactions. The problem was remediated in May 2016.
► Failed to Provide 90-day Notice to FINRA Prior to Using Electronic Storage Media. In violation of Exchange Act Rule 17a-4(f)(2)(i), the firm didn’t notify its DEA prior to retaining a vendor to provide electronic storage.
► Failed to Implement an Audit System Regarding the Inputting of Records in Electronic Storage Media.
► Failed to Obtain an Attestation from its Third-Party Vendor. The firm failed to obtain an attestation from its 3rd-party vendor that it will supply electronically stored records to regulatory authorities in the event the Firm is unable to provide the electronically stored records.
► Virtu’s Supervisory System was not Reasonably Designed.
This case addressed in this article was reported in FINRA Disciplinary Actions for November 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2016051831201.