FIELD NOTES
2024 H2
2024
H2
SWAP REPORTING AND CORE PRINCIPLES VIOLATIONS: $1.3M
What happened?
The CFTC charged two mid-size New York-based swap execution facilities, with failing to report complete and accurate swap transaction data from at least January 2016 to October 2021. Both firms neglected to report thousands of swaps to a swap data repository (SDR), violating CFTC swap reporting rules and SEF Core Principles.
Financial impact: $1.3 million in penalties.
What should they have done?
A strong master data system tracking each swap transaction with details like counterparties and terms, validated in real time, would have ensured accurate data capture for SDR reporting across both firms.
Reference data, including standardized swap identifiers and CFTC reporting formats, could have been integrated to flag incomplete or erroneous submissions.
Linking these systems would automate compliance checks, preventing widespread reporting failures.
How would things have been different?
- Detected and corrected swap reporting errors early, ensuring compliance and avoiding years of violations.
- Potentially avoided or reduced the combined $1.3 million in fines by demonstrating robust data controls to the CFTC.
- Protected their reputations and operational credibility, avoiding regulatory scrutiny and enforcement actions.
Fat-finger trade and a flash crash: €13M + £62M
What happened?
BaFin and the FCA fined the local subs of a major global FI €13M and £27M respectively, for failing to implement adequate systems and risk controls for its algorithmic trading platforms, allowing a “fat-finger” error to send €1.4 billion of unintended sell orders into the market. A subsequent fine from the PRA for £34M followed.
Financial impact: €13M and £62M in fines.
What should they have done?
Stored all trading thresholds, limits, and parameter settings in a dedicated reference data application with version control and role-based access.
Enforced pre-deployment checks that compare incoming order details against approved thresholds, with orders exceeding limits being automatically rejected.
Generated immutable logs of any changes to reference data (e.g. new threshold values) and triggered alerts on exceptions, ensuring rapid remediation of misconfigurations.
How would things have been different?
- A hard validation block would have rejected breaching orders outright, so no unintended sell orders reached the market.
- With controls catching the error in real-time, BaFIN, FCA, and PRA would have had no basis for the fines, saving the firm tens of millions.
- Avoiding the flash crash would have preserved market confidence and the firm's standing, preventing reputational damage and costly remediation efforts.
What happened?
BaFin and the FCA fined the local subs of a major global FI €13M and £27M respectively, for failing to implement adequate systems and risk controls for its algorithmic trading platforms, allowing a “fat-finger” error to send €1.4 billion of unintended sell orders into the market. A subsequent fine from the PRA for £34M followed.
Financial impact: €13M and £62M in fines.
What should they have done?
Stored all trading thresholds, limits, and parameter settings in a dedicated reference data application with version control and role-based access.
Enforced pre-deployment checks that compare incoming order details against approved thresholds, with orders exceeding limits being automatically rejected.
Generated immutable logs of any changes to reference data (e.g. new threshold values) and triggered alerts on exceptions, ensuring rapid remediation of misconfigurations.
How would things have been different?
- A hard validation block would have rejected breaching orders outright, so no unintended sell orders reached the market.
- With controls catching the error in real-time, BaFIN, FCA, and PRA would have had no basis for the fines, saving the firm tens of millions.
- Avoiding the flash crash would have preserved market confidence and the firm's standing, preventing reputational damage and costly remediation efforts.
What happened?
BaFin and the FCA fined the local subs of a major global FI €13M and £27M respectively, for failing to implement adequate systems and risk controls for its algorithmic trading platforms, allowing a “fat-finger” error to send €1.4 billion of unintended sell orders into the market. A subsequent fine from the PRA for £34M followed.
Financial impact: €13M and £62M in fines.
What should they have done?
Stored all trading thresholds, limits, and parameter settings in a dedicated reference data application with version control and role-based access.
Enforced pre-deployment checks that compare incoming order details against approved thresholds, with orders exceeding limits being automatically rejected.
Generated immutable logs of any changes to reference data (e.g. new threshold values) and triggered alerts on exceptions, ensuring rapid remediation of misconfigurations.
How would things have been different?
- A hard validation block would have rejected breaching orders outright, so no unintended sell orders reached the market.
- With controls catching the error in real-time, BaFIN, FCA, and PRA would have had no basis for the fines, saving the firm tens of millions.
- Avoiding the flash crash would have preserved market confidence and the firm's standing, preventing reputational damage and costly remediation efforts.
2024 H1
2024
H1
2022
Swap reporting and core principles violations: $1.9M
What happened?
The CFTC charged a swap execution facility, with failing to report or accurately report thousands of swap transactions to the CFTC, a swap data repository, or the public from 2016 to 2021. The firm also neglected to correct errors promptly and violated SEF Core Principles, undermining transparency and regulatory oversight.
Financial impact: $1.9M in fines.
What should they have done?
A strong master data system with a unified view of each swap transaction, tagged with details like trade specifics, reporting status, and deadlines, would have enabled real-time tracking of reporting obligations, flagging missed or inaccurate submissions for immediate correction.
Reference data could have included standardized SEF reporting requirements (e.g., mandatory fields and timelines) and integrated these into automated systems, triggering alerts for non-compliance or errors.
Linked master data (e.g., swap transactions) to reference data (e.g., Core Principle rules) in a centralized system could have automated error detection and reconciliation processes, ensuring timely and accurate reporting.
How would things have been different?
- Detected and addressed reporting failures early, maintaining compliance with CFTC rules and enhancing market transparency.
- Avoided or reduced the $1.9 million penalty by showing a proactive compliance system, as regulators often credit such efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected its operational integrity and reputation, avoiding scrutiny from regulatory enforcement actions.
What happened?
The CFTC charged a swap execution facility, with failing to report or accurately report thousands of swap transactions to the CFTC, a swap data repository, or the public from 2016 to 2021. The firm also neglected to correct errors promptly and violated SEF Core Principles, undermining transparency and regulatory oversight.
Financial impact: $1.9M in fines.
What should they have done?
A strong master data system with a unified view of each swap transaction, tagged with details like trade specifics, reporting status, and deadlines, would have enabled real-time tracking of reporting obligations, flagging missed or inaccurate submissions for immediate correction.
Reference data could have included standardized SEF reporting requirements (e.g., mandatory fields and timelines) and integrated these into automated systems, triggering alerts for non-compliance or errors.
Linked master data (e.g., swap transactions) to reference data (e.g., Core Principle rules) in a centralized system could have automated error detection and reconciliation processes, ensuring timely and accurate reporting.
How would things have been different?
- Detected and addressed reporting failures early, maintaining compliance with CFTC rules and enhancing market transparency.
- Avoided or reduced the $1.9 million penalty by showing a proactive compliance system, as regulators often credit such efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected its operational integrity and reputation, avoiding scrutiny from regulatory enforcement actions.
What happened?
The CFTC charged a swap execution facility, with failing to report or accurately report thousands of swap transactions to the CFTC, a swap data repository, or the public from 2016 to 2021. The firm also neglected to correct errors promptly and violated SEF Core Principles, undermining transparency and regulatory oversight.
Financial impact: $1.9M in fines.
What should they have done?
A strong master data system with a unified view of each swap transaction, tagged with details like trade specifics, reporting status, and deadlines, would have enabled real-time tracking of reporting obligations, flagging missed or inaccurate submissions for immediate correction.
Reference data could have included standardized SEF reporting requirements (e.g., mandatory fields and timelines) and integrated these into automated systems, triggering alerts for non-compliance or errors.
Linked master data (e.g., swap transactions) to reference data (e.g., Core Principle rules) in a centralized system could have automated error detection and reconciliation processes, ensuring timely and accurate reporting.
How would things have been different?
- Detected and addressed reporting failures early, maintaining compliance with CFTC rules and enhancing market transparency.
- Avoided or reduced the $1.9 million penalty by showing a proactive compliance system, as regulators often credit such efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected its operational integrity and reputation, avoiding scrutiny from regulatory enforcement actions.
Disclosure and internal controls failures: $1.15M
What happened?
The SEC charged a firm with violating conflict of interest rules related to its ratings of commercial mortgage-backed securities (CMBS) from 2015 to 2016. The firm allowed analysts to modify deal parameters during ratings, breaching its disclosed standards and firewalls, which compromised impartiality and misled investors.
Financial impact: $1.15M in fines.
What should they have done?
A strong master data system with a unified view of each CMBS deal, tagged with details like analyst actions, rating criteria, and compliance flags, would have enabled real-time tracking of deviations from stated methodologies, triggering immediate reviews.
Reference data could have included standardized rules for ratings processes (e.g., strict separation of analyst adjustments from initial parameters) and integrated these into oversight systems, alerting compliance when breaches occurred.
Linked master data (e.g., deal adjustments) to reference data (e.g., conflict of interest policies) in a centralized system could have automated enforcement of firewalls, preventing analysts from altering parameters undetected.
How would things have been different?
- Detected and corrected ratings process violations early, ensuring compliance with disclosed standards and protecting investor trust.
- Avoided or reduced penalties by demonstrating a proactive compliance system, as the SEC often credits such efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected its reputation and market credibility, avoiding damage from regulatory enforcement exposure.
What happened?
The SEC charged a firm with violating conflict of interest rules related to its ratings of commercial mortgage-backed securities (CMBS) from 2015 to 2016. The firm allowed analysts to modify deal parameters during ratings, breaching its disclosed standards and firewalls, which compromised impartiality and misled investors.
Financial impact: $1.15M in fines.
What should they have done?
A strong master data system with a unified view of each CMBS deal, tagged with details like analyst actions, rating criteria, and compliance flags, would have enabled real-time tracking of deviations from stated methodologies, triggering immediate reviews.
Reference data could have included standardized rules for ratings processes (e.g., strict separation of analyst adjustments from initial parameters) and integrated these into oversight systems, alerting compliance when breaches occurred.
Linked master data (e.g., deal adjustments) to reference data (e.g., conflict of interest policies) in a centralized system could have automated enforcement of firewalls, preventing analysts from altering parameters undetected.
How would things have been different?
- Detected and corrected ratings process violations early, ensuring compliance with disclosed standards and protecting investor trust.
- Avoided or reduced penalties by demonstrating a proactive compliance system, as the SEC often credits such efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected its reputation and market credibility, avoiding damage from regulatory enforcement exposure.
What happened?
The SEC charged a firm with violating conflict of interest rules related to its ratings of commercial mortgage-backed securities (CMBS) from 2015 to 2016. The firm allowed analysts to modify deal parameters during ratings, breaching its disclosed standards and firewalls, which compromised impartiality and misled investors.
Financial impact: $1.15M in fines.
What should they have done?
A strong master data system with a unified view of each CMBS deal, tagged with details like analyst actions, rating criteria, and compliance flags, would have enabled real-time tracking of deviations from stated methodologies, triggering immediate reviews.
Reference data could have included standardized rules for ratings processes (e.g., strict separation of analyst adjustments from initial parameters) and integrated these into oversight systems, alerting compliance when breaches occurred.
Linked master data (e.g., deal adjustments) to reference data (e.g., conflict of interest policies) in a centralized system could have automated enforcement of firewalls, preventing analysts from altering parameters undetected.
How would things have been different?
- Detected and corrected ratings process violations early, ensuring compliance with disclosed standards and protecting investor trust.
- Avoided or reduced penalties by demonstrating a proactive compliance system, as the SEC often credits such efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected its reputation and market credibility, avoiding damage from regulatory enforcement exposure.
2021
2020
Suspicious Activity Report failures: $38M
What happened?
The SEC charged a firm with failing to file over 150 Suspicious Activity Reports (SARs) for suspicious U.S. microcap securities trades from July 2016 to July 2017, as required by the Bank Secrecy Act and SEC rules. The firm missed red flags, didn’t investigate flagged trades, and neglected SAR filings, risking market manipulation and regulatory oversight.
Financial impact: $38M in penalties.
What should they have done?
A strong master data system with a unified view of each client's trades, tagged with details like security type, volume, and frequency, would have enabled real-time identification of unusual patterns--ike a single account driving significant volume--triggering SAR reviews.
Reference data could have included standardized definitions of suspicious activity (e.g. trades exceeding 5% of daily volume in low-cap stocks) and integrated these into monitoring systems and automated alerts.
Linked master data (e.g. flagged trades) to reference data (e.g. SAR filing rules) in a centralized system could have automated the escalation process.
How would things have been different?
- Detected suspicious microcap trades early, filing SARs to alert regulators and deter manipulation.
- Avoided or reduced penalties by showing a functional compliance system, as the SEC often credits proactive efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected market integrity and client trust, avoiding reputational damage from enforcement headlines.
What happened?
The SEC charged a firm with failing to file over 150 Suspicious Activity Reports (SARs) for suspicious U.S. microcap securities trades from July 2016 to July 2017, as required by the Bank Secrecy Act and SEC rules. The firm missed red flags, didn’t investigate flagged trades, and neglected SAR filings, risking market manipulation and regulatory oversight.
Financial impact: $38M in penalties.
What should they have done?
A strong master data system with a unified view of each client's trades, tagged with details like security type, volume, and frequency, would have enabled real-time identification of unusual patterns--ike a single account driving significant volume--triggering SAR reviews.
Reference data could have included standardized definitions of suspicious activity (e.g. trades exceeding 5% of daily volume in low-cap stocks) and integrated these into monitoring systems and automated alerts.
Linked master data (e.g. flagged trades) to reference data (e.g. SAR filing rules) in a centralized system could have automated the escalation process.
How would things have been different?
- Detected suspicious microcap trades early, filing SARs to alert regulators and deter manipulation.
- Avoided or reduced penalties by showing a functional compliance system, as the SEC often credits proactive efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected market integrity and client trust, avoiding reputational damage from enforcement headlines.
What happened?
The SEC charged a firm with failing to file over 150 Suspicious Activity Reports (SARs) for suspicious U.S. microcap securities trades from July 2016 to July 2017, as required by the Bank Secrecy Act and SEC rules. The firm missed red flags, didn’t investigate flagged trades, and neglected SAR filings, risking market manipulation and regulatory oversight.
Financial impact: $38M in penalties.
What should they have done?
A strong master data system with a unified view of each client's trades, tagged with details like security type, volume, and frequency, would have enabled real-time identification of unusual patterns--ike a single account driving significant volume--triggering SAR reviews.
Reference data could have included standardized definitions of suspicious activity (e.g. trades exceeding 5% of daily volume in low-cap stocks) and integrated these into monitoring systems and automated alerts.
Linked master data (e.g. flagged trades) to reference data (e.g. SAR filing rules) in a centralized system could have automated the escalation process.
How would things have been different?
- Detected suspicious microcap trades early, filing SARs to alert regulators and deter manipulation.
- Avoided or reduced penalties by showing a functional compliance system, as the SEC often credits proactive efforts (e.g., self-reporting cases in 2024 reduced fines).
- Protected market integrity and client trust, avoiding reputational damage from enforcement headlines.