According to FINRA, Seaport Global Securities LLC was censured and fined $125,000 for failing to establish and maintain a supervisory system for its options desk's practice of canceling (busting) and re-executing (adjusting) manual options trades.

The firm initially had no supervisory systems or written procedures for reviewing manual options trades that were busted and adjusted by its options trading desk. On four occasions, the firm's options traders directed floor brokers to bust and adjust manual options trades either at the counterparty's request or due to firm errors. In each case, the adjustments resulted in prices less favorable to the firm's customers than when the trades were originally executed.

The firm performed no supervisory review of these requests to ensure compliance with applicable FINRA rules or to determine whether customers should be compensated. During the investigation, the firm offered full restitution totaling $111,400 plus interest to the affected customers.

When the firm eventually implemented updated procedures requiring traders to seek approval and notify compliance when requesting to bust and adjust a trade, the procedures still provided no guidance on the circumstances under which such requests were permitted. The firm also lacked systems to address customer compensation when a bust and adjust would result in a worse price for the customer.

FINRA also found that the firm failed to make and keep accurate order memoranda for the busted and adjusted trades. The firm documented only the terms of the re-executed transactions, not the original orders, and recorded inaccurate order entry and receipt times.

Investors should understand that trade adjustments can affect their execution prices. Proper documentation and supervision of these practices are essential to protect customer interests.