In today's BrokeAndBroker.com Blog, we got a mob of angry villagers chasing after Frankenstein's monster and then a cameo appearance by Godzilla. Then we got mistakes. Two types. We got clearly erroneous errors and we got obvious errors. On top of that, we have time running out as a brokerage firm drops that ball before it can get off an audible. In the end, it's all really the customer's fault but that doesn't matter because we got rules, and those rule have to be followed.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, tradeMONSTER (n/k/a Aperture, LLC d/b/a OptionsHouse) submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of tradeMONSTER (n/k/a Aperture, LLC d/b/a OptionsHouse), Respondent (AWC 2013038121501, November 3, 2016).
Since 2008, Respondent has been a FINRA member firm. The AWC asserts that the firm had no prior relevant disciplinary history.
The AWC asserts in pertinent part:
2. On April 29, 2013, very shortly after entering an erroneous order, a customer of the firm realized his error and contacted the firm within the time permitted under the relevant exchange's rules to request a review and bust of his trade due to obvious error. However, the firm failed to timely contact that exchange about the customer's request. As a result, the customer's trade was not busted. The inability to bust the trade led to a loss for the customer that was ultimately settled between the firm and the customer. Thereafter, in response to the customer's complaint in connection with the firm's handling of this transaction, staff's examination of the firm revealed that the firm did not have adequate systems and procedures, including written supervisory procedures ("WSPs"), to handle customer bust requests until July 2016.
3. During the review period, the firm failed to maintain a reasonable supervisory system, including written supervisory procedures, concerning the handling of customer bust and/or adjust requests.
4. The conduct described in paragraph two above constitutes a violation of NASD Rule 3010 (for the period prior to December 1, 2014) and FINRA Rules 2010 and 3110 (for the period after November 30, 2014).
In accordance with the terms of the AWC, FINRA imposed upon Respondent a Censure and $25,000 fine.
Bill Singer's Comment
My first quibble has to do with the Respondent's name. I mean, gimme a break. First we got tradeMONSTER. What the hell is with the all lower case "trade" and the all upper case "MONSTER" and how they are joined together? FINRA should not allow such a silly name. There oughta be a rule.
Next, as if it's not bad enough with that monstrosity of a name and its oddball type, we then find out that the name was put to death by a crowd of angry villagers armed with pitchforks and torches (okay, so, shoot me, I'm engaging in some poetic license -- it's my blog and I will do what the hell I want).
From the ashes of tradeMONSTER arose what is now "n/k/a Aperture, LLC. N/K/A??? That was some old boy band: New Kids . . . what did the "a" stand for? Oh, wait, that's not right. Those three letters with hashes mean "now known as." So, the old tradeMonster is now known as "Aperture, LLC." I'd love to know how they came up with that new name but, wait a sec, now we have a "d/b/a". So, what's now known as "Aperture, LLC" is actually doing business as "OptionsHouse." Like GodzillaHouse wouldn't have worked?
The Error Order Error
Now, let me end this name quibble and return to the more serious business of criticizing FINRA's AWC. At the very heart of this AWC is the assertion that the customer had entered an "erroneous order." Ummm . . . my dear, dear friends at FINRA . . . do you think that you might have set forth the terms of that purportedly erroneous, purportedly "obvious" error? Yeah, go re-read the AWC. You never told us what was erroneous or obviously erroneous about the order.
Move along here . . . c'mon folks, nothing to see here but a dead reanimated monster and some creature from a billion years ago.
Not So Obvious
After the customer enters his erroneous order, he contacts the brokerage firm and asks that they bust his trade because the "error" at issue isn't just a plain old error but an "obvious" one. And, yes, I know that an "obvious error" is a term used on Wall Street to describe a specific type of goof. Unfortunately, according to the AWC, the Respondent dropped the ball and didn't contact some exchange in order to get approval to bust the "obvious error." As a result of the firm's lapse, the customer then gets angry, which apparently prompts the firm to settle with the customer.
Trying to put all of that into motion, let's imagine that a customer places a buy order for 1000 shares of XYZ at $13.09 when the last offer was $1.39. Oh, how we all hate those online trading screens when we don't have our glasses on or when we're multi-tasking and not paying the degree of attention that we should In any event, the customer gets quite the shock when his online confirmation reads $13,090 for what should have been a $1,309 trade. Not that the guy with the fat thumb or the attention lapse is accepting the error and saying: My bad. My fault. Yeah, as if that's going to happen. What happens is the customer panics and telephones the brokerage firm and offers all sorts of lame excuses and insists that ya gotta bust the trade!!!
Which may well bring us to that moment when a desperate customer contacted Respondent and told his tale of woe. According to the AWC, Respondent should have immediately processed the whole bit of customer panic as falling within the likely ambit of a "clearly erroneous trade." The applicable rule likely starts a 30-minute stopwatch once the client request the bust and in 2013, it seems that tradeMONSTER let time expire before calling an audible at the line of scrimmage. That gets you a delay of game penalty in football. It also gets you a delay of order bust penalty from FINRA.
Frankly, this is a case that's simply about a customer who screwed up but did so within the ambit of the so-called "clearly erroneous trade" parameters. The respondent did not appear to live up to its end of the bargain when it failed to timely seek a bust of the trade as provided by the rules. Consequently, I concur with FINRA: tradeMONSTER had the opportunity and ability to bust the trade but seems to have taken its sweet time about it and never quite asked the right exchange official for a do-over.
On the other hand, the way FINRA actually presents this regulatory settlement, Respondent was censured and fined "in connection with the firm's handling of this transaction, staff's examination of the firm revealed that the firm did not have adequate systems and procedures, including written supervisory procedures ("WSPs"), to handle customer bust requests until July 2016."
I mean, really?
In reality, what problem will likely be avoided because of a written procedure setting forth how to respond to said problem? C'mon, let's all be honest here. Does anyone ever really, really, really look up written procedures when all hell is breaking loose? Does anyone even know where to find the damn hard-copy of the WSPs or how to locate the relevant section of the WSPs in the online manual?
Clearly, Respondent dropped the ball and failed to timely process the request to bust the trade. The error in entering the clearly erroneous trade, however, rests solely with the customer but the problem of trying to timely undo the mistake rests with respondent. To its credit, Respondent settled with the customer, although FINRA's use of the qualifier "ultimately" suggests that the settlement may have involved more than a bit of the firm being dragged and kicked into coughing up the dollars. Pointedly, I'm not disagreeing with FINRA asking for a fine, but, geez, could we please drop the pretense that the failure here is about the lack of WSPs dealing with the issue of a requested bust.
This is about the everyday idiocy of folks making mistakes, not doing their jobs, and failing to properly follow up. As such, what FINRA would need to do is to promulgate a rule that prohibits industry employees from pretending that they did what they were supposed to do when, in fact, they didn't, and then they pretended to have asked for a trade to be busted when, in fact, they didn't, and then they pretended to have gotten an answer to an un-asked question. What this AWC has little, if anything, to do with is the absence of WSPs.
Why do folks go through all those excuses and pretenses? Because it's how things get done -- or, actually, it's how things don't get done. And there isn't a goddamn rule or section of rules or and entire book of written supervisory procedures that's ever going to short circuit such lunacy.