Piper Sandler & Co.
The findings stated that due to a coding error, one of the firm’s reporting vendors—through which a small portion of the firm’s options orders were routed—calculated the value of certain firm options orders as if each contract was for one share of an underlying stock, when in fact a standard option contract represents 100 shares of the underlying stock. As a result, the firm overstated its reportable options orders, which caused inaccuracies in the statistical data related to its options orders, including order percentages and payment received or paid.
In addition, the firm published five Rule 606(a) of Regulation NMS reports that failed to adequately disclose material aspects of its relationship with certain venues identified in its Rule 606(a) reports. Despite prior notification from FINRA regarding deficiencies in its material aspects disclosures, the firm’s disclosures did not set out a complete description of its payments for order flow or the profit-sharing relationship it had with certain execution venues.
In particular, the firm stated that its primary options executing broker “may” pass through fees and rebates it received on the firm’s orders when in fact, it passed through the fees and rebates in full. Subsequently, the firm worked with its vendor to correct the reporting errors, made enhancements to its material aspect disclosures, and republished certain Rule 606 reports with updated information.
The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with Rule 606(a). The firm’s procedures failed to provide guidance on how supervisory reviews would be conducted or what would be reviewed. Moreover, the firm failed to conduct reasonable supervisory reviews of its Rule 606(a) reports, including by failing to reasonably review the accuracy of statistical information it obtained from one of its vendors. Ultimately, the firm revised its policies and procedures related to Rule 606 reporting.
