FINRA 'Discipline' Alert! Barclays Overstates Trading Volume in Thousands of Instances, Inflating Its Reported Data to Bloomberg by Approximately 147 Million Shares! Bloomberg Published It. Penalty? A Censure and a $175,000 Fine
Source: https://www.finra.org/sites/default/files/fda_documents/2019061298301%20Barclays%20Capital%20Inc.%20%20CRD%2019714%20AWC%20gg%20%282022-1671668413165%29.pdf
Good evening Superstonk, I hope everyone's week is off to an awesome start!
I would like to share some more FINRA 'discipline' with y'all, this time it's Barclays .
As these releases convey a ton of information I am going to try and follow the same recent approach, I hope this format makes sense.
- I am going to outline what Barclays did from points from the filing.
- I am going to pull the rules they broke and attempt to provide wut mean definitions
- I am going to try and break each section against Barclays down a bit further.
- I will talk about the penalty leveled.
- I will talk about how the nefarious behavior could impact GameStop.
- Lastly, TLDRS.
Let's hit it!
What Barclays did (without admitting or denying):
- Barclays overstated its daily trading volume in thousands of instances when advertising through Bloomberg.
- Between January 2014 and July 2018, the firm's supervisory system and written supervisory procedures (WSPs) were not adequately designed to ensure compliance with FINRA Rule 5210.
The Rules Barclays broke:
Wut mean?:
FINRA Rule 5210 states that a member (like a broker-dealer) should not publish or circulate any information about a transaction (like a purchase or sale of a security) unless they believe that the transaction was genuine.
- If a member violates this rule, they're also violating FINRA Rule 2010, which requires members to maintain high standards of commercial honor and fair principles of trade in their business operations.
Broker-dealers often advertise their daily trading volume in securities through platforms like Bloomberg. These platforms use this advertised trading volume to create reports and rankings of broker-dealers by security.
- If a broker-dealer like Barclays overstates their advertised trading volume, it can mislead market participants about which broker-dealers are most active or have the most liquidity in certain securities.
Wut mean?
FINRA Rule 3110(a) requires each member (like a broker-dealer) to establish and maintain a system to supervise the activities of each associated person.
- This system should be reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules.
FINRA Rule 3110(b) requires each member to establish, maintain, and enforce written procedures to supervise the types of business it engages in and the activities of its associated persons.
- These procedures should be reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules.
A violation of either NASD Rule 3010 or FINRA Rule 3110 is also a violation of FINRA Rule 2010.
Barclays Capital overstated its advertised trading volume in thousands of instances and by approximately 147 million shares:
Wut mean?:
From January 2014 to February 2019, Barclays Capital used a proprietary system to calculate its trade volumes and send this information to Bloomberg for advertisement.
- However, this system had several technological flaws that led to inflated calculations of the firm's trade volume.
- These incorrect calculations were then automatically sent to Bloomberg, which published them.
The errors that inflated the Barclay's trade volume included:
- Counting trades that were later canceled or corrected.
- Counting transactions between Barclays Capital's affiliates as if they were trades with non-affiliated entities.
- Double-counting trades executed in the market when there was a subsequent transfer of the same security in a riskless principal transaction.
- In total, these errors led to Barclays Capital overstating its advertised trading volume in more than 4,500 instances, involving more than 2,600 unique securities, by about 147 million shares.
- The firm corrected these technology flaws by February 2019.
Barclays Capitalโs supervisory system and WSPs were not reasonably designed to achieve compliance with FINRA Rule 5210:
Wut mean?:
From January 2014 to July 2018, Barclays Capital's supervisory system and Written Supervisory Procedures (WSPs) were not adequately designed to comply with FINRA Rule 5210.
- The firm's WSPs did not address how it should calculate its trading volume or how it should monitor its advertised trading volumes for accuracy.
- As a result, Barclays failed to detect thousands of instances where it overstated its advertised trading volume.
- In July 2018, Barclays implemented new WSPs that addressed advertised trading volume.
- However, due to its previous oversight, Barclays violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
Penalty?:
Without admitting or denying anything, a censure and $175,000 fine.
How could Barclays nefarious behavior could impact GameStop?:
Misleading Liquidity Perception: If Barclays was trading GameStop shares and overstated its trading volume, it could create a false perception of high liquidity for GameStop's stock.
- This could mislead investors into believing that the stock is more actively traded than it actually is.
False Market Signals: Overstated trading volumes can send false signals to the market about the popularity and demand for a particular security, such as GameStop.
- This could lead to price distortions as participants across the market respond to these false signals.
- Investor Confidence: Repeated instances of such behavior from major financial institutions like Barclays erode investor confidence in the transparency and fairness of the market.
TLDRS:
- Between 2014 and 2019, Barclays Capital overstated its trading volume by approximately 147 million shares.
- From 2014 to 2018, the firm failed to have an adequate supervisory system.
- In 2019, Barclays Capital fixed the technology flaws that led to the overstated volumes.
- In 2018, the firm implemented new Written Supervisory Procedures (WSPs).
- FINRA found Barclays Capital in violation of its rules due to these issues.
- These actions misled investors with inflated volume data.
