According to FINRA, Pershing LLC, based in Jersey City, New Jersey, was censured, fined $175,000, and required to pay regulatory transaction fees for unreported fractional share trades executed between June 1997 and June 2023. The firm was found in violation of FINRA's trade reporting rules for failing to report millions of fractional share trades over a 26-year period.
The findings revealed that Pershing LLC failed to report fractional share trades to the FINRA/Nasdaq Trade Reporting Facility (FNTRF), the Over-the-Counter Reporting Facility (ORF), and their predecessors. During a sample period of 11 years, the firm failed to report over five million fractional share trades with customers. Because these trades went unreported, the firm also did not pay the regulatory transaction fees associated with them. Regulatory transaction fees fund the operations of securities regulators and are an essential component of the market oversight framework.
The firm also failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA's rules for reporting fractional share trades. Although the firm devised a supervisory framework for such reporting in July 2022, the system was not implemented until June 2023, meaning there was a gap of nearly a year between designing the solution and putting it into practice.
Accurate trade reporting is fundamental to the integrity of the securities markets. Regulators, investors, and market participants rely on trade data to monitor market activity, detect potential misconduct, and ensure fair pricing. When a major clearing firm like Pershing, which processes trades on behalf of numerous broker-dealers, fails to report millions of trades, it creates a significant gap in the market data that regulators depend on to protect investors.
For investors, this case underscores the importance of the infrastructure that supports the securities markets. While individual investors may not directly interact with trade reporting systems, the accuracy of these systems directly affects market transparency and the ability of regulators to detect fraud and manipulation. Investors should be aware that even large, well-established firms can have systemic compliance failures, and that FINRA actively investigates and sanctions such failures. This case also highlights how compliance problems, if left unaddressed, can compound over time, as evidenced by the 26-year duration of the reporting failures at Pershing.
