← Broker database 2022-12-22
Wells Fargo Securities Fined $200,000 for Overstating Trade Volume
According to FINRA, Wells Fargo Securities, LLC was censured and fined $200,000 for overstating its advertised trade volume on two third-party private subscription-based providers of market data.
The firm configured its systems to automatically advertise daily trading volume in numerous securities through the two third-party service providers. However, two distinct technological misconfigurations within the firm's systems caused it to overstate its executed trade volume. First, an error in the firm's trade advertising software caused the firm to erroneously advertise certain options trades as equity transactions, which caused the firm to overstate its trading volume in equity transactions on both third-party service providers. Second, a misconfiguration of the order management system used by one of the firm's trading desks caused certain trades routed between that desk and the firm's electronic trading desk to be advertised on one third-party service provider twice, causing the firm to overstate its trading volume. The firm stopped the overstatements caused by each misconfiguration within a week of learning about the issues. In total, the firm published 54 inaccurate monthly reports.
Additionally, the firm failed to establish and maintain a supervisory system, including Written Supervisory Procedures, reasonably designed to achieve compliance with FINRA Rule 5210. The firm conducted daily reviews of its manually advertised trade volume and monthly reviews of a sample of its auto-advertised trade volume. However, the firm had no defined criteria for selecting the monthly sample or determining how many securities or what proportion of the firm's advertised trade volume should be included. The firm's review process was not reasonably designed to identify overstatements of trading volume on one of the third-party service providers. Furthermore, the firm failed to perform any testing of option trades or multi-leg trades to ensure that non-equity components were properly excluded from advertisement.
This case demonstrates that even automated systems require proper supervision and testing. Trade volume advertising affects how market participants perceive liquidity and can influence trading decisions. Investors and market participants rely on accurate trade volume data to assess market conditions and make informed trading decisions. Firms must implement adequate controls and testing procedures to ensure the accuracy of their advertised trading volume.