According to FINRA, E*TRADE Securities LLC was censured and fined a total of $350,000 on January 11, 2022, for failing to establish and maintain a supervisory system reasonably designed to detect potentially manipulative trading activity by its customers.

The firm's automated surveillance system used parameters that significantly restricted its ability to detect potential wash trades, prearranged trades, and marking-the-close activity, particularly in lower-priced and thinly traded securities. Wash trades involve a trader buying and selling the same security to create misleading market activity. Marking-the-close involves trades designed to artificially influence a security's closing price. Prearranged trades are non-competitive transactions arranged between parties in advance.

Additionally, the firm did not have surveillance reasonably designed to detect trading that artificially increased or decreased the price of thinly traded stocks, such as when customers attempt to artificially influence prices by effecting a series of buy transactions to create false appearance of trading interest, followed by opposite-side transactions to profit from the artificially inflated price.

This case highlights the responsibility of brokerage firms to maintain effective surveillance systems to detect and prevent market manipulation. Manipulative trading harms honest investors by distorting prices and creating false impressions of market activity.

For investors, this underscores the importance of choosing reputable firms with robust compliance systems. While no firm can prevent all misconduct, firms must have adequate surveillance tools to identify suspicious patterns and take appropriate action to protect market integrity and investor interests.