Instinet, LLC has agreed to pay a $165,000 fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From February 2015 through July 2019, Instinet published inaccurate data in 54 monthly reports it was required to publish pursuant to Regulation NMS Rule 605 (Rule 605 reports). As a result, Instinet violated Rule 605 and FINRA Rule 2010.
From February 2015 through February 2019, Instinet operated the Instinet Continuous Block Cross ATS (CBX), which received covered orders reportable under Rule 605.
During this period, the firm excluded from its Rule 605 reports potentially reportable orders submitted to CBX by certain business units and systems at the firm. The firm had erroneously determined that all orders received through these particular business units and systems were subject to special handling and excluded from the definition of a covered order. As a result, the firm underreported by approximately five percent its total covered orders during the relevant period.
In March 2019, after this issue was identified by FINRA during a firm exam, the firm began evaluating each order individually to determine whether the order should be included in the firm’s Rule 605 report.
Additionally, from June 2017 through July 2019, due to logic errors in the Rule 605 report-generating software used by the firm,5 the firm inaccurately classified midpoint peg immediate-or-cancel orders by order type. The firm inaccurately classified such orders as marketable limit orders, rather than inside-the-quote limit orders.
The software logic error was corrected in August 2019.
In total, from February 2015 through July 2019, the firm published 54 inaccurate monthly Rule 605 reports.
From February 2015 through May 2019, Instinet did not maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with Rule 605. Through this conduct, Instinet violated FINRA Rules 3110(a) and 2010.
In addition to the fine, the firm has agreed to a censure.
