FINRA fines Bank of America $5M on OTC options violations

Dive Brief:

The Financial Industry Regulatory Authority (FINRA) fined Bank of America’s securities unit $5 million Monday for failing to report over-the-counter options positions more than 7.4 million times between 2009 and 2020, the self-regulatory organization said.
Bank of America’s supervisory system, between 2014 and 2020, “was not reasonably designed to comply with its [Large Options Positions Reporting system] reporting obligations,” FINRA said, adding the bank didn’t have an “effective system to detect whether there were positions that should have been reported to the LOPR but were not.”
Bank of America did not admit to the charges and said that it has enhanced its platform to include data quality checks that ensure it’s meeting reporting obligations.

Dive Insight:

Bank of America’s failure to report the more than 7.4 million options positions made it harder for FINRA to surveil markets for potentially manipulative behavior, the organization said.

In particular, 26 of Bank of America’s unreported positions were also over the applicable OTC position limit of either 25,000 or 50,000 contracts.

The accuracy of LOPR is “essential to FINRA’s surveillance” because regulators don’t have an independent source to review over-the-counter options activity, the organization said.

“FINRA relies on accurate reporting of transactions in order to maintain the integrity of the markets,” said Jessica Hopper, executive vice president and head of FINRA’s Department of Enforcement. Bank of America’s “failure to report millions of OTC options positions prevented FINRA from carrying out that core function for transactions that carry substantial risks.”

Bank of America’s failure to report the options positions stemmed from an “undetected system issue in the reporting process,” a bank spokesperson said.

The bank’s securities unit agreed to a censure and must certify by Oct. 31 that it has “established, maintains and enforces supervisory procedures” that comply with certain FINRA rules.

This was not the first time Bank of America found itself in hot water with FINRA this year. The organization fined the bank $325,000 in July for publishing 107 inaccurate monthly reports of order execution.