Liquidnet, the New York agency broker owned by TP ICAP Group, has agreed to pay $250,000 and accept a censure to settle charges brought by the Financial Industry Regulatory Authority (FINRA) over inaccurate execution-quality reporting.
According to FINRA's Letter of Acceptance, Waiver and Consent, the firm published 74 inaccurate monthly execution-quality reports under Regulation NMS Rule 605 between February 2018 and March 2024. Rule 605 requires market centers to publish monthly statistical information on how they handle and execute orders in NMS securities.
FINRA found that Liquidnet erroneously included approximately 67 million orders that required special handling in its Rule 605 reports. These orders were incorrectly classified as covered orders, which are intended to represent standard orders for execution-quality comparison. Treating these special-handling orders as covered orders skewed the order and execution-quality statistics that buy-side clients, regulators, and competing venues use to evaluate and compare execution performance.
FINRA identified the reporting inaccuracies during a March 2023 examination of the firm. Liquidnet subsequently implemented coding fixes, and by April 2024 the misclassified orders had been removed from its monthly Rule 605 disclosures, according to the regulatory filing.
Repeat reporting failures
This action marks the second time in four years that FINRA has censured Liquidnet for inaccuracies in Rule 605 order-execution reports. In February 2022, the firm consented to a $50,000 fine and a censure related to 30 inaccurate Rule 605 reports filed between August 2015 and January 2018.
The earlier matter involved a different type of misclassification. Liquidnet had incorrectly reported marketable limit orders as inside-the-quote limit orders, resulting in inaccurate execution-quality statistics for that reporting period. While the nature of the errors differed, both actions centered on the firm’s failures to correctly categorize orders in required execution-quality disclosures.
FINRA’s latest action against Liquidnet places the broker alongside other firms that have been penalized in recent years for Rule 605 reporting failures. The case underscores that the regulator continues to scrutinize monthly execution-quality reports for misclassified orders and supervisory gaps that can distort the data relied upon by market participants and oversight bodies.
