According to FINRA, Flow Traders U.S. Institutional Trading LLC was censured and fined $75,000 for inaccurately reporting transactions to TRACE without the required No Remuneration (NR) indicator and for inadequate supervision of its TRACE reporting obligations.

The firm executed numerous transactions in TRACE-eligible securities without charging a mark-up, mark-down, or commission to customers. FINRA rules require that such transactions be reported to TRACE with an NR indicator, which provides transparency to the market that the firm did not receive compensation for the trade. Although the firm recorded the NR indicator for these transactions in its internal systems, a coding error prevented the indicator from being included when reports were submitted to TRACE. The firm subsequently remediated this error after discovering the problem.

The violations revealed serious supervisory deficiencies at Flow Traders. The firm failed to establish and maintain written supervisory procedures reasonably designed to ensure compliance with TRACE reporting requirements. Specifically, the firm failed to conduct reasonable supervisory reviews of the accuracy of its NR indicator reporting. The firm's written procedures required monthly reviews of TRACE report cards, but these procedures did not address the NR indicator or describe how supervisors should review report cards for NR indicator usage.

Given that Flow Traders executed a substantial volume of trades in TRACE-eligible securities without charging compensation, a proper review of the firm's monthly TRACE report cards showing zero trades reported with the NR indicator should have immediately alerted supervisors to a problem. The failure to detect this obvious discrepancy demonstrates inadequate supervision.

TRACE reporting provides critical transparency to the corporate and government bond markets. Accurate reporting helps ensure that market participants have access to reliable pricing information. The NR indicator specifically helps distinguish between compensated and non-compensated trades, which is relevant to understanding trading motivations and market dynamics.

The firm ultimately implemented daily reviews of NR indicator reporting accuracy and enhanced its written procedures to include these reviews, helping prevent future violations.