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From Securities Regulation Daily, December 23, 2015

Firm hit with $2.95 million fine for blue sheet reporting violations

By Kevin Kulling, J.D.

FINRA has censured and fined Macquarie Capital (USA) Inc. $2.95 million for the firm’s failure to provide complete and accurate trade data to the SEC and FINRA. The firm allegedly submitted more than 1,000 inaccurate so-called “blue sheets” to the SEC that misreported at least 178,318 transactions.

According to FINRA, Macquarie submitted a Letter of Acceptance, Waiver and Consent (AWC) to settle the charges, which also included allegations that the firm also submitted at least 600 inaccurate blue sheets to FINRA that misreported at least 160,971 transactions.

Blue sheets. The SEC and FINRA request blue sheets to assist them in investigations focused on equity trading, including suspicious and insider trading. Blue sheets provide regulators with critical information about suspicious transactions, including the name of the account owner, the nature of the transaction, such as whether it was a buy or sale, and the price at which the transaction occurred.

Origins of the problem. According to the AWC, between January 2012 and September 2015, Macquarie experienced multiple problems with blue sheet systems, including reversing the buy/sell code on allocations of certain customer trades; miscalculating the net amount on allocations of certain customer trades; failing to report post-trade cancels and corrections; and failing to provide (or providing incomplete) customer information for certain transactions. The problems were caused by technical deficiencies in the firm’s blue sheet systems; errors in its blue sheet logic; and the fact that information was pulled from a front-end database that did not accurately reflect actions that sometimes occurred after a trade was executed.

In 2012 and 2013, Macquarie’s written supervisory procedures for blue sheets consisted of instructions on how to submit a blue sheet response and “sample checking” for blue sheet validation. In early 2014, after a consultant reviewed its blue sheet systems and procedures, Macquarie revised its blue sheet validation process and subsequently discovered the problems

Between January 2012 and 2014, Macquarie did not have in place an adequate audit system providing for accountability of its blue sheet submissions.

Review of procedures. Macquarie also agreed to conduct a comprehensive review of its policies, systems, and procedures related to blue sheet submissions and to certify that it established procedures reasonably designed to address and correct the violations.

The firm. Macquarie, a full-service broker of Australian, Asian and U.S. equity and fixed income securities, equities research, and underwriting services, is headquartered in New York and has approximately 568 registered persons in its offices around the world, according to FINRA.

In settling, Macquarie neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

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