The $1.4 million fine imposed on State Street Global Markets by the NASD stands as a stark reminder to firms that they need to monitor the use of technology. The Boston-based firm's failure to properly follow the electronic reporting guidelines of the TRACE transparency system resulted in the largest fine ever imposed by the NASD for nonreporting through TRACE. State Street failed to report 14,073 trades, 89% of its total trading volume, worth over $5 billion dollars between July 2003 and December 2004.
The reporting failures centered on ensuring that all trades that were TRACE eligible for new accounts would be automatically and immediately reported to the system so that the transactions could be recorded. These failures were a result of several executives at State Street leaving prior to the time period in question, leaving the firm with operators who had less than extensive knowledge of making sure that trades of these new accounts would be reported to TRACE.
"This goes to show the impact these new forms of technology have on firms and the marketplace. They are powerful tools, but they need to be understood and utilized properly in order to reap the benefits," a tech expert said. "I think the NASD fine illustrates that point. You have to take the good with the bad. If trades were reported manually, you might not have this problem, but the other side of the argument is the speed and efficiency proper electronic reporting brings," he explained.
In a statement released at the time of the fine, Mary Schapiro, vice chair of NASD, said, "State Street Global's reporting failures deprived the markets, investors and regulators of critical information, and impaired the integrity of bond trading data that market participants rely upon to make informed investment decisions." Calls to State Street were not returned.