According to FINRA, SEI Investments Distribution Co. was censured and fined $150,000 for failing to report interdealer transactions to TRACE and inaccurately reporting execution capacity for related customer transactions.

The firm failed to report interdealer transactions between itself and another firm that acted as an executing broker to fill customer orders. The firm incorrectly believed that the agent it employed to submit transaction information to TRACE was reporting these interdealer transactions. However, neither the agent nor the firm reported the transactions, resulting in unreported trades.

For most of the related customer orders, the firm inaccurately reported to TRACE that it executed transactions in a principal capacity when it actually executed them in an agency capacity. The firm later began using a principal account for these customer transactions, which made its principal capacity reporting accurate going forward.

The firm also failed to report the correct capacity in customer trade confirmations. Customers received confirmations for transactions that contained inaccurate information about how their trades were executed.

FINRA found that the firm failed to establish, maintain, and enforce a supervisory system and written supervisory procedures reasonably designed to achieve compliance with TRACE reporting rules. The firm had no system or procedures to identify potential failures to report transactions to TRACE or errors in the firm's reporting of its execution capacity.

Accurate reporting of execution capacity matters because it affects how customers understand their transactions. Whether a firm acts as principal or agent can have implications for pricing and potential conflicts of interest. Customers have a right to know in what capacity their broker-dealer acted.

This case demonstrates the importance of firms not only having proper reporting systems but also verifying that third-party agents they rely upon are actually performing the reporting functions the firm expects. Firms remain responsible for their reporting obligations regardless of delegation arrangements.