IMC Financial Markets has agreed to pay a fine of $1.2 million as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From the start of its Consolidated Audit Trail (CAT) reporting obligation on June 22, 2020, through June 30, 2023, IMC failed to timely and accurately report data for tens of billions of equity and options order events to the CAT Central Repository in violation of FINRA Rules 6830, 6893, and 2010.
As a large industry member, IMC was required to begin reporting its order event data to the CAT Central Repository on June 22, 2020. IMC developed software to report its data to CAT. However, from the start of its CAT reporting obligation through June 30, 2023, IMC reported approximately 21.8 billion inaccurate equity and options orders events to CAT, spanning 35 unique error types.
The firm’s inaccurate reports were caused by software coding and system issues, which persisted for a period spanning a few weeks to nearly two years.
For example, IMC:
- Reported 7.5 billion events with an inaccurate time in force code of “GTX” to indicate “Good till Crossing” instead of “IOC” for an Immediate or Cancel order between June 22, 2020, and April 23, 2021.
- Reported over 680 million equity order events without the required millisecond between October 22, 2020, and June 13, 2023.
- Reported 1.9 billion events that had linkage errors3 between July 1, 2022, and August 31, 2022.
Further, from June 22, 2020, through January 21, 2023, IMC failed to timely report 6.9 billion equity and options orders events to the CAT Central Repository. These late reports were caused by technology issues involving the firm’s connectivity to various exchanges and other broker-dealers.
By June 2023, after updating its reporting system, IMC remediated the issues that caused the above-described CAT reporting violations.
IMC has also submitted reports to the CAT Central Repository to correct over 99.9% of the 28.7 billion late and inaccurate reports.
By failing to timely and accurately report order events to the CAT Central Repository, IMC violated FINRA Rules 6830, 6893, and 2010.
From June 2020 to September 2020, IMC had no supervisory system in place to review the accuracy of the data it reported to CAT. Further, IMC did not maintain written supervisory procedures concerning the firm’s CAT reporting obligation during this period.
Beginning in September 2020, IMC implemented a supervisory system, including written supervisory procedures, concerning CAT reporting requirements but the scope of IMC’s supervisory review was unreasonably narrow.
From September 2020 through March 25, 2021, the firm conducted a quarterly accuracy review of only three complete order cycles. In 2021, the firm increased the quarterly accuracy review to one complete order cycle for equities and options for each of the over 10 market centers to which the firm sent orders.
In late 2021, IMC reduced the number of order events that it reviewed per quarter to two order cycles from each of the trading platforms that generated order and trade data that IMC reported to CAT. The scope and frequency of IMC’s supervisory review for CAT reporting compliance was not reasonable given the volume of data that IMC reported to the CAT Central Repository (each quarter averaged billions of CAT events).
By failing to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with CAT reporting rules, IMC violated FINRA Rules 3110 and 2010.
In addition to the $1.2 million fine, the firm has agreed to a censure and an undertaking that a member of its senior management who is a registered principal of the firm must certify in writing that the firm has remediated the issues and implemented a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA Rules 6830, 6893, and 2010.
