FINRA says BofA Securities Failed to Report Over-the-Counter Options Positions in More Than 7.4 Million Instances 

According to a press announcement on September 12, the Financial Industry Regulatory Authority (FINRA) has fined Bank of America Securities $5 Million for failing to report over-the-counter (OTC) options positions to the Large Options Positions Reporting system in more than 7.4 million instances, including 26 positions that were over the applicable OTC position limit, and other supervisory failures. 

FINRA Rule 2360 requires member firms to report large options positions to the Large Options Positions Reporting, which FINRA uses to check for potentially manipulative behavior, including attempts to corner the market in the underlying equity, leverage an option position to affect the price, or move the underlying equity to change the value of a large option position.  

There is no independent source of data for regulators to review OTC options activity, so the accuracy of the Large Options reporting is essential to FINRA’s surveillance, and is particularly important with respect to the OTC options market, according to the regulator. 

From January 2009 and October 2020, Bank of America allegedly failed to report OTC options positions to the Large Options Reporting in more than 7.4 million instances, in violation of Rule 2360 as well as Rule 2010 (Standards of Commercial Honor and Principles of Trade), according to FINRA.  

Twenty-six of the unreported positions were also reportedly over the applicable OTC position limit of either 25,000 or 50,000 contracts. Further, FINRA found that from January 2014 through October 2020, the firm’s supervisory system purportedly failed to comply with its Large Options reporting obligations, a violation of FINRA Rules 3110 (Supervision) and 2010. According to FINRA, the Bank of America purportedly did not have an effective system to detect whether there were positions that should have been reported but were not. 

Bank of America Securities reportedly consented to the entry of FINRA’s findings, without admitting or denying the charges. In addition to the fine, the firm agreed to a penalty of a censure and a requirement that an officer and principal of the firm certify by Oct. 31, 2022, that BofAS has established, maintains and enforces supervisory procedures reasonably designed to achieve compliance with FINRA Rule 2360. 

FINRA  

FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry, brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public.  

FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org. 

 his matter reportedly originated from FINRA’s Trading and Financial Compliance Examinations Group’s identification of the issue through the group’s review of OTC exercise limits. 

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The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. For more information, please visit our website, www.whitesecuritieslaw.com.