BNP Fined $100k for Options Compliance Failings

The broker-dealer put two systems in place that both failed to properly report transactions to the FNTRF

US regulatory authorities fined BNP Paribas Securities $100,000 on Friday.

A statement issued by the enforcement department at the Financial Industry Regulatory Authority (FINRA) indicates that the fine stems from regulatory reporting failures on the part of the broker-dealer.

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To be fair to the French firm, the compliance failings were not deliberate or malicious, and that was reflected in the comparatively small fine that it was levied with.

According to FINRA, in late 2011, BNP set up an automated reporting system for its over-the-counter options exercises. In the US, when a firm exercises an OTC option, it must report the trade to the FINRA/Nasdaq Trade Reporting Facility (FNTRF).

The system that BNP built, however, did not report vanilla options that it had exercised because of a programming error.

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That error went unnoticed for almost three years when FINRA asked BNP for a set of trading data, and the firm couldn’t provide it.

Failed again

As a result, FINRA found that the broker-dealer had failed to report 676 vanilla options transactions from December 2011 to February 2014. According to the US regulator, those 676 options made up 17.6 percent of all the exercised contracts that the broker-dealer was supposed to report in that period.

After realizing that its automated system wasn’t working, BNP decided to switch to a manual process in which transactions would be reviewed and then sent to the FNTRF.

But on this occasion, the compliance officer responsible had to gather data from BNP’s Hong Kong and Paris offices. This then led the compliance officer to report transactions after a specified cut off point. As a result, the dealer-broker once again failed to meet regulatory standards.

For this latter effort, BNP was fined $40,000 – on top of another $60,000 for its initial breach of regulatory standards. As is usual with such fines, BNP did not accept nor deny the regulator’s charges.

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