FINRA fines BNY $35,000 for VRDO violations

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BNY Mellon Capital Markets has agreed to pay $35,000 to settle charges it violated a municipal securities rule after the Financial Industry Regulatory Authority found it didn’t submit accurate variable rate demand obligation interest rate information.

The New York-based firm agreed late last week to pay the fine and be censured while neither admitting nor denying FINRA’s findings that it violated Municipal Securities Rulemaking Board Rule G-34, on CUSIP requirements.

The Financial Industry Regulatory Authority settled charges with BNY Mellon Capital Markets last week.

From April 1, 2011 to March 15, 2018, FINRA found that BNY failed to submit accurate minimum denomination and maximum interest rate information to the MSRB’s Short-Term Obligation Rate Transparency System 54,270 times.

The SHORT system collects and disseminates information and documents on municipal securities bearing interest at short-term rates, including VRDOs.

Acting as a remarketing agent, BNY submitted information on an interest rate reset to the SHORT system, but did not report the minimum denominations in 1,449 submissions, FINRA found, a 2.7% error rate. BNY also did not report the maximum interest rate in 52,821 submissions, a 99% error rate, FINRA found.

MSRB Rule G-34 requires each remarketing agent to submit VRDO interest rate reset information, including the minimum denomination and maximum interest rate. The minimum denomination of a muni bond is the lowest denomination of an issue that can be purchased or authorized by the bond documents. The maximum interest rate is the highest permissible rate for a muni security set by governing documents, like the official statement.

“The reporting failures occurred because the firm’s reporting system which transmits data to the MSRB’s EMMA system for SHORT reporting, did not require the entry of the minimum denomination and maximum interest rate fields,” FINRA said. “BNY traders mistakenly left the minimum denomination and maximum interest rate fields blank and, for a portion of the review period, populated an incorrect field with the maximum interest rate information.”

BNY declined to comment.

BNY became a member of FINRA in August 1986 and a member of the MSRB in April 1995. As of May 2020, the firm had 10 branch offices and 203 registered individuals.

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