Broker-Dealer Ignored Information Barriers for Issuer Share Repurchases
The SEC fined a broker-dealer $1.25 Million for failing to respect required information barriers, thereby allowing the sharing of material nonpublic share buyback information with customers. The SEC alleges that the trading desk that executed issuer share repurchase trades shared order data with another desk that disclosed the information to customers. The head traders of the two desks shared trading intelligence including access to the order management system. The SEC maintains that the information was material to an investment decision because third party customers could use the trade orders as indications of the financial health of the underlying issuer. The SEC charges the firm with violating its own policies on information barriers.
OUR TAKE: It appears that the firm failed to implement a monitoring system to ensure that the trading desks observed information barriers. How firms ensure the protection of material nonpublic information should be part of the annual testing program.