Securities regulators issued a $400,000 fine to Banc One Securities Wednesday for falling short of its responsibilities to crack down on repeated late trades for mutual funds and maintain adequate records of trading times.
In levying its largest fine levied against a brokerage firm for improperly supervising trading activities, the NASD said it intended to send a clear message that sloppy compliance procedures are fair game for securities regulators.
"Late trading is illegal, and to prevent it, firms must implement systems to guarantee that all mutual fund orders processed after the close of the market were received during normal trading hours," said NASD Vice Chairman Mary L. Schapiro.
"NASD will be vigilant about sanctioning firms that fail to put adequate systems and procedures in place, regardless of whether late trading, in fact, occurs," she added.
NASD investigators discovered that Banc One permitted investors to make late trades between Nov. 1, 2002 and Nov. 11, 2003 and backdate mutual fund prices to net asset values before the standard 4 p.m. market cutoff time. To make matters worse, the illegal trading patters went undetected at Banc One, the regulators said.
During the investigation, regulators determined that Banc One processed approximately 5,400 late trades, or 1.75% of the 306,000 total non-systemic mutual fund orders, during that period.