Instinet, LLC has agreed to pay a $3,800,000 fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA).。

It is reported that from June 22, 2020 to fulfill the comprehensive audit trail (CAT) reporting obligations, Instinet has failed to timely and accurately report data on tens of billions of order events to the CAT central repository.。

As a large industry member, Instinet was required to start reporting its order event data to the CAT central repository on June 22, 2020.。After evaluating various in-house and vendor CAT reporting solutions, Instinet hired a third-party vendor as the company's CAT reporting agent。

However, Instinet failed to maintain adequate technical specifications for its order data, which would have enabled Finland's data to be converted into a CAT reportable format; in addition, the company's technical specifications were not widely understood by some of the company's personnel。Failure to enable reporting agents to convert Instinet data to a format that can be used for CAT reporting in a timely manner。

In early June 2020, Instinet notified FINRA that it expected to encounter CAT reporting issues from June 22, 2020。

As expected, Instinet experienced serious CAT reporting issues from the beginning of its reporting obligations。As a result, from June 22, 2020 to November 6, 2020 alone, Instinet failed to report more than 5.2 billion stock and option order events to the CAT Central Repository in a timely manner, representing approximately 17% of the company's CAT reporting obligations during that period.。

The company had reported 2.7 billion late order events as of late October 2020, but did not report the remaining 2.5 billion order events until March 2021, which is up to nine months after those order events occurred.。On October 26, 2020, Instinet completed the rollout of new code, addressing some of the reasons for reporting errors.。

In addition to data conversion issues, from November 2020 to December 2022, Instinet experienced at least 26 billion incidents of late reporting issues, accounting for about 8% of the company's CAT reporting obligations in this period.。These delayed reports stem from a variety of issues, such as the reporting agent's insufficient capacity to handle Instinet's order event volume。

Order data conversion issues and other configuration issues also led the company to report inaccurate data on billions of other order events.。By January 2023, Instinet had identified approximately 180 different types of CAT reporting errors, including inaccurate share quantities, processing instructions, department type codes, customer display instruction flags, and event timestamps.。

Instinet therefore violated FINRA rules 6830, 6893 and 2010.。

From June 22, 2020 to the present, Instinet's regulatory system (including written procedures) is unreasonably designed to comply with FINRA's rules on CAT reporting。Instinet will not conduct a supervisory review of the accuracy of the data it reports to the CAT central repository until the third quarter of 2021。

Even so, Instinet only conducts a quarterly review.。This frequency is unreasonable based on the amount of data reported by Instinet to the CAT central repository。

In addition, Instinet did not respond reasonably to red flags of significant problems with the accuracy of its CAT reports.。Although Instinet became aware of the reporting problem in 2020, it did not respond reasonably to its CAT reporting error until FINRA raised the issue in 2021.。In late 2021 and early 2022, Instinet began to accelerate its remediation program, but the known remediation is not yet complete.。