The Financial Industry Regulatory Authority (FINRA) has fined BofA Securities for failing to report over-the-counter (OTC) options positions to the Large Options Positions Reporting system (LOPR).
According to FINRA, the company failed to report in more than 7.4 million instances between January 2009 and October 2020. This includes 26 positions that were over the applicable OTC position limit of either 25,000 or 50,000 contracts. The amount of the fine is $5 million.
FINRA Rule 2360 requires member firms to report large options positions to the LOPR. FINRA uses this data to watch for potentially manipulative behavior. The accuracy of LOPR reporting is essential to FINRA’s surveillance. It is particularly important for the OTC options market, which has no independent source of data for regulators to review OTC options activity.
In addition, FINRA found that from January 2014 through October 2020, the firm’s supervisory system was not reasonably designed to comply with its LOPR reporting obligations. Among other things, the firm did not have an effective system to detect whether there were positions that should have been reported to the LOPR but were not.
“FINRA relies on accurate reporting of transactions in order to maintain the integrity of the markets,” Jessica Hopper, executive vice president and head of FINRA’s Department of Enforcement, said. “BofAS’s failure to report millions of OTC options positions prevented FINRA from carrying out that core function for transactions that carry substantial risks.”
BofAS consented to the entry of FINRA’s findings without admitting or denying the charges. In addition, the firm agreed to a penalty of a censure and a requirement that an officer and principal of the firm certify that it has established and enforced supervisory procedures designed to achieve compliance with FINRA Rule 2360.