A Minneapolis-based firm has agreed to pay $25,000 to settle charges that it violated multiple municipal securities rules after the Financial Industry Regulatory Authority found it failed to make timely submissions or submit accurate information regarding variable rate demand obligation rate resets.
Dougherty & Company LLC agreed on Monday to pay the fine and be censured while neither admitting nor denying FINRA’s findings that it violated Municipal Securities Rulemaking Board Rules G-27 on supervision and Rule G-34 on CUSIP numbers. Of the fines, $15,000 was for Rule G-34 violations and $10,000 for Rule G-27 violations.
FINRA found that from July 1, 2016 through December 31, 2016 and also from July 1, 2018 through December 31, 2018, the firm failed in 310 instances to make timely submissions or submit accurate information regarding the result of an interest rate reset for VRDOs to the MSRB’s Short-Term Obligation Rate Transparency system.
MSRB Rule G-34 requires each remarketing agent to report the date and time of a VRDO interest rate reset. The remarketing agent has to submit that interest rate reset information, among other information to the SHORT system.
Remarketing agents have to submit their interest rate reset information to the SHORT system no later than 6:30 p.m. ET on the date on which an auction or an interest rate reset occurs. If an interest rate reset occurs on a non Real-Time Reporting System business day, the MSRB says that it should be reported no later than 6:30 p.m. ET on the next RTRS business day.
MSRB's RTRS collects and disseminates transaction data to enhance market transparency.
During the review period, the firm failed in 211 instances, an 8.7% error rate, to submit information regarding interest rate resets for VRDOs on time.
From July 1, 2016 through December 31, 2016, the firm failed in 99 instances, a 7.3% error rate, to submit accurate information regarding interest rate resets for VRDO on time. Specifically the firm failed to submit accurate rate reset times to the SHORT system, FINRA found.
FINRA also found that the firm failed to establish and maintain a supervisory system to review for accurate and timely submissions to the SHORT system. The firm’s procedures only provided instructions to document submissions made to the SHORT system, FINRA said.
In a corrective action statement submitted by the firm, Dougherty said it revised its written supervisory procedures to detail steps to timely and accurate report interest rate reset information.
The firm also said it restructured its compliance department so that now all members report to its general counsel. Its compliance department is also performing a review and audit on its SHORT system reporting. In the past, the firm had performed that review and audit on a quarterly basis and it will now be done monthly.
The firm also made changes to its municipal trading desk and personnel, adding a new person to manually input the reporting information into the SHORT system.
“It is now impossible for the person that is manually inputting the information into the MSRB SHORT System to leave the input screen without properly inputting all of the information related to the interest rate resets,” the firm said.
Going forward, if something is improperly input into the SHORT system or is not complete, an email will automatically be sent to its head of compliance and municipal trading department, the firm said.
“Due in part to the remediation steps taken by Dougherty as are set forth in this Corrective Action Statement, Dougherty is confident that the reporting issues that are the subject of the AWC (acceptance, waiver and consent) have ceased to exist after January 2, 2019,” the firm said.
Dougherty became a FINRA member in 1977 and an MSRB member in 1982. It has 11 branches and 106 registered individuals. The firm did not have any relevant disciplinary history.
The firm’s general counsel did not immediately respond to a request comment.
