NASD fines State Street unit $1.4m for bond trades
Company failed to report $5b, officials say
State Street Global Markets LLC was fined $1.4 million by the National Association of Securities Dealers for failing to report more than $5 billion of corporate and municipal bond trades in the largest such penalty imposed on a single firm.
The unit of State Street Corp. didn't notify the NASD or the Municipal Securities Rulemaking Board about the trades over a 17-month period. Washington-based NASD, which disclosed the fine today in a press release distributed by PR Newswire, cited ''supervisory deficiencies" and a lack of ''institutional knowledge" about reporting rules.
Since July 2002 brokerage firms have been required to disclose price and volume data on all company bond transactions to NASD's Trace bond-price reporting system in an effort to make the traditionally opaque market more transparent. NASD disseminates prices on about 22,000 transactions and $18 billion in volume every day.
''State Street Global's reporting failures deprived the markets, investors, and regulators of critical information," NASD vice chairman Mary Schapiro said in a statement. The violation ''impaired the integrity of bond trading data that market participants rely upon to make informed investment decisions."
State Street, which is the world's second-largest manager of exchange-traded funds, neither admitted nor denied the charges, but consented to the entry of NASD's findings, NASD said. State Street Global Markets provides investment research and trading services to investment managers.
The errors didn't result in any monetary gain for State Street or cause financial harm to investors, said Carolyn Cichon, a State Street spokeswoman. The company reviewed its training program to ensure the errors didn't reoccur, she said.
''We reported our fixed-income errors to the NASD as soon as they were identified and cooperated with the investigation," said Cichon, who declined to comment about departures that the NASD said led to the lapse in reporting.
NASD said it found State Street Global failed to mention 14,073, or 89 percent, of its self-cleared corporate bond transactions to Trace from July 2003 through December 2004. It also neglected to report 380, or 79 percent, of its municipal bond transactions to the MSRB for the same period.
State Street didn't have sufficient written procedures to ensure proper trade reporting, and some bank personnel who conducted inspections weren't registered as securities professionals, the NASD said. State Street ''lacked adequate institutional knowledge" of reporting rules after the departure of several key operations and fixed-income trading employees.
The NASD has stepped up its fines in an effort to promote accurate and timely trade reporting and to create an ''audit trail" for regulators to detect potential trading manipulation and violations, according to a June 29 statement by the NASD.
Twenty securities firms, including Piper Jaffray Cos., ABN Amro Inc., and JPMorgan Chase & Co., were fined a combined $1.65 million in June for late and inaccurate reporting of municipal bond trades.
The NASD on Oct. 31 fined three brokerages including SG Americas Securities LLC a total of $6.75 million and expelled DebtTraders Inc. for charging excessive markups or markdowns on corporate high-yield bond trades. The firms were ordered to return $1.1 million to clients.
NASD began disseminating corporate bond-price data through Trace in July 2002, initially reporting on 500 bonds.
