The Financial Services Authority (FSA) has fined financial spread betting company City Index £490,000 for failing to provide accurate transaction reports for nearly two years.
The company was also found to not have the appropriate systems in place for spotting errors in its reporting processes when it consolidated its trading platforms into a single one.
Firms are required to have systems and controls in place to ensure they submit accurate data for reportable transactions by close of business the day after a trade is executed. The FSA uses this data to detect and investigate possible market abuse, such as insider trading and market manipulation.
Between November 2007 and September 2009, City Index did not submit accurate transaction reports relating to around two million transactions – nearly 60 percent of its reportable transactions. Around 1.9 million transactions were reported with one or more data fields incorrectly completed, while the company failed to provide any report for 55,589 transactions.
City Index also breached FSA principles by not having an approved system in place to ensure the accuracy and validity of its transaction reports. This meant that it did not identify fundamental errors in its reporting process following the implementation of a new trading platform, called G2, in March 2008.
Prior to the implementation, City Index operated two different trading platforms, called G1 and FIBS. The company used an external approved reporting mechanism (ARM) to facilitate the transmission of reports to the FSA.
When G2 was introduced, it replaced FIBS, and gradually took over the activities of G1. By October 2008, G2 had taken over all trading and transaction responsibilities for the firm.
Around three months after the new trading platform was introduced, City Index’s operations department discovered that transactions that had been rejected by the system as a result of data entry errors were not being re-submitted to the ARM. Consequently, the firm carried out training with IT staff concerning the resubmission of rejected trades in the future.
Margaret Cole, managing director of enforcement and financial crime, said that the regulator would continue to monitor the quality of transaction reporting.
"Firms and their management must ensure they submit quality transaction reporting data and we encourage all firms to review the integrity of this data on a regular basis," she said.
City Index avoided an original fine of £700,000 by agreeing to settle at an early stage. It has commissioned a formal review of its transaction reporting processes by external consultants and implemented a remediation project to address the IT and controls issues identified by the review.
Since 2009, the FSA has issued fines to seven firms for transaction reporting failures, including Barclays, Credit Suisse, Getco Europe, Instinet Europe, Commerzbank and Société Générale.