FINRA Fines BofA Securities $155,000 for Trade-Through Compliance Violations

BofA Securities, Inc. has agreed to pay a $155,000 fine and accept a censure following a settlement with the Financial Industry Regulatory Authority (FINRA) over multiple trade-through compliance issues.

FINRA's review found that between September 2014 and August 2022, BofA Securities executed approximately 11,089 off-exchange trade-throughs using an Outbound ISO Exception modifier. However, systemic latency issues meant these trades were often executed at least one second after the corresponding ISOs were routed, a timing discrepancy that invalidated the exception. According to FINRA, these delays "were the unintended consequence of the firm's programming choices" and were not intended to give customers better pricing.

Additional issues were identified in the firm's electronic order management systems. From January 2015 through July 2023, these systems only processed market data from the top eight quotation levels for each stock, occasionally failing to route necessary ISOs. This contributed to approximately 42 trade-throughs occurring between June and August 2022.

Manual order execution practices were also cited. Between November 2019 and June 2020, a trading desk executed orders outside the national best bid and offer (NBBO) for customer facilitations and position transfers, resulting in trade-throughs. In November 2019 alone, about 47 trade-throughs occurred that did not qualify for regulatory exceptions.

Furthermore, from January to April 2021, BofA Securities routed ISOs with incorrect FIX tag information, causing exchanges to reject 3,475 orders and resulting in 23 trade-throughs without necessary ISO routing. FINRA also noted deficiencies in the firm's surveillance and supervisory systems, which were "not reasonably designed to detect and review potential trade-throughs" or validate exception modifiers.

As a result, FINRA determined that BofA Securities violated Exchange Act Rule 611(a)(1), (a)(2), and (c), FINRA Rules 6380A(a)(5)(I) and (J), and supervisory rules including FINRA Rules 3110(a), 3110(b), and NASD Rule 3010.

The firm has agreed to the fine and censure as part of the settlement, acknowledging the regulatory findings without admitting or denying the violations.