Clearing House Firm Electronic Transaction Clearing, Inc. (“Electronic”) Charged by FINRA
Clearing house firm Electronic settled allegations filed against it by the Financial Industry Regulatory Authority (“FINRA”), a securities regulator, in March, 2017. According to FINRA, Electronic failed to report suspicious activity which it either detected or should have detected. The clearing firm had been warned of suspicious activity from FINRA before failing to warn its customers. Electronic offers typical clearing firm services, including allowing access through its trading accounts. Clearing firms such as Electronic are tasked with monitoring and restricting trades for suspicious or illegal practices. FINRA had previously warned the clearing firm that past inaction in reviewing suspicious activity would result in possible disciplinary actions. FINRA stated that Electronic took steps to restrict traders in 2014, but refused to take proper steps to review the necessity of filing a suspicious activity report.
FINRA charged Electronic with a long list of clearing firm violations, including inadequate supervision. The clearing firm charges go as deep as improper processing and faulty procedures in identifying customers, improper transfers to third parties, and failure to maintain accurate books and records. Electronic has also been charged with causing deficiencies up to $3.5 million between January and March of 2014, by improperly processing pass-through fees when determining customer reserves, and gave inaccurate information through several levels of trading and share segregation.
FINRA also charged Electronic with improperly transferring funds inside of omnibus accounts which were not recorded accurately in the clearing firm’s calculations. FINRA stated the clearing firm refused to perform due diligence on suspicious customers being foreign financial institutions, after being warned by the SEC and FINRA about former customers were classified as foreign financial institutions.
ATC had previously agreed to pay a $125,000 fine in February of 2016 for refusing to review suspicious activity for the need to file a report after restricting hundreds of traders between May of 2010 and September of 2011. Harvey Cloyd Jr. and Kevin Murphy, Electronic officials and the clearing firm itself were fined $1 million by the Chicago Board Options Exchange in 2014. The exchange stated the fine, which was eventually ordered to be altered after reconsideration, was pursuant to the clearing firm breaking short selling rules and committing anti-laundering violations.