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Piper Sandler Fined $95,000 for Inaccurate Rule 606 Reports and Material Aspects Disclosures
According to FINRA, Piper Sandler & Co. was fined $95,000 for publishing inaccurate quarterly Rule 606 reports that overstated statistical information related to options orders and failed to adequately disclose material aspects of its relationships with certain execution venues.
The firm's reporting failures stemmed from a coding error made by one of its reporting vendors. This vendor incorrectly calculated the value of certain options orders as if each contract represented one share of underlying stock, when in fact a standard option contract represents 100 shares. This fundamental error caused the firm to overstate its reportable options orders and created inaccuracies in statistical data including order percentages and payments received or paid.
Beyond the technical errors, Piper Sandler published five Rule 606 reports that failed to adequately disclose material aspects of its relationship with certain execution venues. Despite prior notification from FINRA about deficiencies in its material aspects disclosures, the firm's reports did not provide complete descriptions of its payment for order flow arrangements or profit-sharing relationships with certain venues. Specifically, the firm stated that its primary options executing broker "may" pass through fees and rebates when, in fact, the broker passed through these fees and rebates in full—a significant misrepresentation of the actual arrangement.
The firm's supervisory failures were equally concerning. Piper Sandler's written procedures failed to provide guidance on how supervisory reviews should be conducted or what should be reviewed. The firm failed to conduct reasonable supervisory reviews of its Rule 606 reports, including failing to verify the accuracy of statistical information obtained from its vendors.
Investors rely on Rule 606 reports to understand how their broker-dealer handles order routing, payment for order flow arrangements, and potential conflicts of interest. Accurate disclosure of material aspects—including profit-sharing arrangements—is critical for investors to assess whether their orders are being routed in their best interest.
After these issues came to light, Piper Sandler worked with its vendor to correct the reporting errors, enhanced its material aspect disclosures, republished certain Rule 606 reports with updated information, and revised its policies and procedures related to Rule 606 reporting.