FINRA fines BNY Mellon Capital Markets $60,000 for alleged MSRB rule violations

BNY Mellon Capital Markets, LLC agreed to pay a $60,000 fine as part of a settlement with the Financial Industry Regulatory Authority regarding alleged municipal securities rule violations, including an allegation by FINRA that the firm failed to include a required indicator when reporting transactions in new issue municipal securities.

New York, N.Y.-based BNY Mellon Capital Markets settled without admitting or denying FINRA's findings, a settlement document accepted by FINRA on Jan. 8 shows. In addition to agreeing to pay the fine, the firm also consented to the imposition of a censure.

FINRA found that in about 1,725 instances from April 2022 through May 2024, BNY Mellon Capital Markets reported transactions to the Municipal Securities Rulemaking Board's Real-time Transaction Reporting System that lacked the required special condition indicator for transactions in new issue muni securities in violation of MSRB Rule G-14.

"MSRB Rule G-14 sets out the requirements that apply to firms when reporting transactions in municipal securities to the RTRS," FINRA said in its findings, which were included in the settlement document. "Accurate and timely reporting to the RTRS ensures the correct dissemination of transaction information, increases price transparency, and enhances regulatory oversight of trading in municipal securities."

Rule G-14 RTRS Procedures direct that certain transactions affected by special conditions are to be reported with a "special condition indicator," as set forth in the "Specifications for Real-Time Reporting of Municipal Securities Transactions," FINRA said in its findings. Those specifications require dealers to report "List Offering Price/Takedown Transactions" by the end of the day on which those transactions are executed.

"'List Offering Price/Takedown Transaction' means a primary market sale transaction executed on the first day of trading of a new issue: (a) by a sole underwriter, syndicate manager, syndicate member, selling group member or distribution participant to a customer at the published list offering price for the security?; or (b) by a sole underwriter or syndicate manager to a syndicate, selling group member or distribution participant?," according to the specifications, which FINRA cited in its findings.

For list offering price/takedown transactions, the special condition indicator is "M020," FINRA noted in its findings.

By failing from April 2022 through May 2024 to include the required M020 special condition indicator for all of the firm's roughly 1,725 list offering price/takedown transactions reported to RTRS, "BNY Mellon Capital Markets violated MSRB Rule G-14(b)," FINRA said.

In addition, FINRA found that from April 2022 through at least May 2024, the firm failed to establish and maintain a supervisory system, including written procedures, adequately designed to ensure compliance with MSRB Rule G-14(b). During that time frame, the firm's written procedures didn't explain how it should review its muni new issue trading books to confirm that trades had the M020 indicator attached, FINRA found. In practice, BNY Mellon Capital Markets also didn't review whether the indicator was appended accurately to transactions reported to the RTRS.

BNY Mellon Capital Markets later updated its written procedures and instituted new processes to strengthen its review and supervision of its RTRS reporting, FINRA said.

"By failing to establish and maintain a supervisory system reasonably designed to ensure compliance with applicable reporting obligations of MSRB Rule G-14(b), BNY Mellon Capital Markets violated MSRB Rule G-27," FINRA said in its findings.

BNY Mellon Capital Markets, a full-service registered broker-dealer, is an indirect wholly owned subsidiary of The Bank of New York Mellon Corporation (BK), whose corporate brand is BNY.

"BNY is pleased to have resolved this matter," a BNY spokesperson said. "We take our regulatory and compliance responsibilities very seriously."