Hilltop Securities Inc. has agreed to pay a fine of $170,000 as a part of a settlement with Cboe Exchange, Inc.
The matter originated from a review conducted by FINRA’s Department of Market Regulation regarding the Firm’s compliance with its obligations to report listed option positions and related information to the Large Options Position Report (LOPR).
From on or about June 1, 2020 through on or about October 3, 2022, Hilltop, in approximately 58,656 instances,1 reported approximately 3,239 positions to the LOPR without an Acting in Concert (AIC) identifier and, in approximately 18,839 instances, failed to report approximately 501 positions as AIC.
These reporting violations were caused by the Firm’s failure to properly collect, identify, and aggregate potential in-concert groups based on the positions of its introducing firms, coding issues within the system of the Firm’s third-party LOPR provider, and human error.
From on or about June 1, 2020 through on or about June 18, 2022, due to a coding issue within the system of the Firm’s third-party LOPR service provider and human error, Hilltop failed to report approximately 1,173 positions to the LOPR in approximately 53,617 instances.
From on or about June 1, 2020 through on or about March 31, 2023, another technology processing issue caused the Firm to misreport the account number for all records submitted to the LOPR in approximately 1.6 million instances.
Specifically, when Hilltop transitioned its LOPR reporting to a new service provider on or about June 1, 2020, the Firm changed its methodology for reporting account numbers and began adding a “1” or “2” to the end of each account number to differentiate between cash (“1”) and margin (“2”).
The acts, practices, and conduct described in Paragraphs 7 through 9 constitute violations of Cboe Rule 8.43 by Hilltop, in that the Firm failed to report or inaccurately reported positions to the LOPR in approximately 131,112 instances and failed to accurately report the account number for all records submitted to the LOPR in approximately 1.6 million instances.
From on or about June 1, 2020 through on or about March 31, 2023, Hilltop failed to establish, maintain, and enforce written supervisory procedures (WSPs) and supervisory systems that were reasonably designed to prevent and detect violations of the Firm’s LOPR reporting obligations.
Specifically, although Hilltop’s WSPs included a process for identifying and reporting in-concert groups for its own customers’ accounts, Hilltop failed to have in place reasonable procedures or systems to collect in-concert information from its introducing brokers and to identify and aggregate potential in-concert groups based on the positions of its introducing brokers. The Firm did not have a process designed to review whether the in-concert information entered into its systems by its introducing firms was accurately and completely reported.
Moreover, Hilltop’s WSPs related to the review of rejected LOPR records did not describe in any detail how to conduct such reviews and the Firm’s WSPs related to the resubmission of rejected LOPR records did not describe in any detail how to resubmit rejected records. The Firm did not provide training to its LOPR compliance personnel on proper use of the third-party provider’s system it utilized to repair records. Lastly, Hilltop’s supervisory system was also not reasonably designed to detect the Firm’s submission of inaccurate account numbers to the LOPR.
The acts, practices and conduct described in Paragraph 11 constitute violations of Cboe Rule 8.16 by Hilltop, in that the Firm failed to establish, maintain, and enforce supervisory systems, including WSPs, that were reasonably designed to achieve compliance with Cboe Rule 8.43.
In light of the alleged rule violations described above, and prior relevant disciplinary history, the firm consented to the imposition of a censure and a monetary fine in the amount of $170,000.
