Instinet Slapped with $3.8 Million Fine by FINRA for Flawed CAT Reporting Practices

Instinet Slapped with $3.8 Million Fine by FINRA for Flawed CAT Reporting Practices


Instinet, LLC, a prominent player in the financial sector, has been hit with a substantial penalty of $3.8 million by the Financial Industry Regulatory Authority (FINRA) for its failure to meet Consolidated Audit Trail (CAT) reporting obligations. The fine comes as a result of Instinet's deficient and inaccurate reporting of order event data to the CAT Central Repository.

Mandatory since June 22, 2020, CAT reporting requires financial entities to provide accurate and timely data on order events to ensure transparency and market integrity. However, Instinet struggled to maintain the necessary technical specifications for converting data into CAT-reportable formats, hindering their reporting agent's ability to translate the information accurately.

Warnings issued in advance of the obligation proved accurate, as Instinet faced significant issues from the outset. Notably, the company failed to report over 5.2 billion equities and options order events, amounting to about 17% of its reporting obligation, from June 2020 to November 2020.

Issues persisted, leading to further delays and inaccuracies in reporting, ultimately raising regulatory concerns. Instinet's supervisory procedures were found lacking, with delayed reviews of reported data and inadequate responses to red flags indicating reporting errors.

As a result, Instinet was found to have violated multiple FINRA rules, including Rules 6830, 6893, 2010, and 3110.

The hefty fine underscores the importance of accurate and timely CAT reporting, a vital aspect of maintaining transparency and credibility in the financial industry. Instinet's case serves as a reminder of the necessity for rigorous technical specifications, robust supervisory systems, and proactive response mechanisms to ensure the accuracy and integrity of financial reporting.