by Howard Haykin

Mark Pfeiffer agreed to a $20K fine and a 31-day suspension to settle FINRA charges that he manually advertised trade volume in 88 instances in Bloomberg and/or Thomson Reuters that substantially exceeded his member firm’s executed trade volume.

Lawrence Zirkel, agreed to a $20K fine and a 3-month suspension to settle FINRA charges that he intentionally over advertised the executed trade volume of his member firm and instructed two traders who reported to him to engage in the same conduct in order to attract order flow to the firm.

BACKGROUND.   Mark Pfeiffer, who resides in New York, NY, was a trader at the time with Avian. He entered the securities industry in 1999 and was associated with Avian Securities ("AVIA") from October 2003 through November 2012. He was later employed by another B/D.

Lawrence Zirkel, who also resides in New York, NY, was a senior trader at the time with Avian. He entered the securities industry in June 1992 and, between 1992 and 2002, was employed at 6 member firms. Zirkel was associated with AVIA from in July 2002 until 12/7/12. He was later hooked up with another firm from April 2014 until January 2017.

Neither individual had had any disciplinary history.

FINRA FINDINGS.    This matter arises from a review of AVIA’s advertised trade volume for the review period, 9/1/09 through 11/30/11. The OTC Compliance Team of FINRA’s Market Regulation Division conducted the review.

Many sellside broker-dealers, including AVIA, advertise intra-day and historical trading volume in a particular security through certain private service providers, such as Bloomberg and Thomson Reuters. The advertisements are targeted at buyside traders, who rely on the advertised statistics to decide which broker-dealers might provide best execution in trades involving particular securities. They’re also directed at issuers, who in the future may need to raise additional capital.

Needless to say, advertising inaccurate trade volume violates NASD Rule 2210, NASD Rule 3310 and IM-3310, and FINRA Rule 5210, which provide, in part, that "[n]o member shall publish or circulate, or cause to be published or circulated, any ... advertisement, ,.. or communication of any kind which purports to report any transaction as a purchase or sale of any security unless such member believes that such transaction was a bona fide purchase or sale of such security."

While During the review period, most of AVIA's trade volume was advertised automatically. Trades entered into the firm's order management system were automatically transmitted to outside vendors such as Bloomberg and Thomson Reuters for advertising. However, traders could, and did, manually advertise trade volume directly into Bloomberg and/or Reuters as well.

According to FINRA examiners, during the period:

• While most of AVIA's advertised trade volume that appeared on outside vendors – e.g., Bloomberg and Thomson Reuters - was automatically transmitted through AVIA’s trade processing system, traders were able to adjust the advertised volumes by transmitting to these vendors manually entered trades.
• That provided Pfeiffer and Zirkel with the capability to intentionally over-advertise AVIA’s executed trade volume.
• Zirkel also instructed 2 traders under his supervision to engage in the same conduct.
• The number of shares manually advertised by all 4 traders had no relationship to the number of shares traded by AVIA.
• The erroneous trade data was entered to enhance the profile of the firm, which could have resulted in increased order flow to the firm.
• Such activities would have violated NASD Rule 3310 (and IM-3310) and FINRA Rule 5210, among other rules.

FINANCIALISH TAKE-AWAYS.    FINRA also sanctioned firms as part of this ‘sweep examination’. One such firm, HSBC, was fined $575,000 for such violations. [Click on Financialish, 4/5/17.]

Both cases were reported in FINRA Disciplinary Actions for May 2017.

For details on the Pfeiffer case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2013039424201.

For details on the Zirkel case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2011030206801.