Securities Arbitration Lawyer Blog
Iorio Altamirano LLP is investigating claims on behalf of J.H. Darbie & Co., Inc. customers after the firm was censured and fined $25,000 by FINRA for best execution rule violations. Specifically, FINRA found that the firm’s publicly available reports on its order routing practices for non-directed orders contained inaccurate and incomplete information. FINRA also found that the firm had submitted inaccurate and incomplete Order Audit Trail System (OATS) data. FINRA’s Order Audit Trail System (OATS) is an integrated audit trail of order, quote, and trade information for all NMS stocks and OTC equity.
If you have lost money with J.H. Darbie & Co., Inc., contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.
J.H. Darbie & Co., Inc. is headquartered in New York, New York, and has been a FINRA member since February 1998. The firm provides retail brokerage services and employs 36 registered representatives.
AWC Findings
J.H. Darbie & Co., Inc. and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on February 8, 2021, over FINRA’s findings that:
- Between the third quarters of 2011 and the third quarter of 2018, the firm made publicly available reports on its routing of non-directed orders in national market system (NMS) securities that were inaccurate and incomplete.
- Between February 2013 and January 2019, the firm submitted Reportable Order Events (ROEs) to the Order Audit Trail System (OATS) that included inaccurate, incomplete, or improperly formatted data. Further, between February 2016 and January 2019, the firm submitted nearly 17,375 ROEs to OATS that included inaccurate, incomplete, or improperly formatted data.
Rule 606 of Regulation NMS
Rule 606 of Regulation NMS requires that broker-dealers make publicly available quarterly reports that contain information on their routing of non-directed orders in national market system (NMS) securities. The rule’s goal is to foster greater transparency in connection with a broker-dealer’s best execution responsibilities.
Rule 606 requires that firms report both: a) the percentage of total orders for the section that were non-directed orders, and b) the percentages of total non-directed orders for the section that were market orders, marketable limit orders, non-marketable limit orders, and “other” orders.
“Other” orders include orders that are not limit or market orders, such as Not Held orders, market open and market close orders, and all-or-none orders.
Firms are also required to provide in their reports material information about the broker-dealers’ order routing arrangements, including any arrangements for payment for order flow and any profit-sharing relationship.
Relatedly, FINRA’s 2021 report identified industry-wide issues related to firms’ failure to comply with SEC Rule 606 disclosures. You can read more about FINRA’s 2021 report here. You can also read more about Best Execution here.
J.H. Darbie & Co., Inc.’s 29 quarterly reports failed to describe the material terms of the order routing arrangements, namely, the amounts per share or per order that the firm received as payment for order flow. Further, for each calendar quarter starting with the first quarter of 2013 through the second quarter of 2018, the firm made publicly available 22 quarterly reports on its routing of non-directed orders in covered securities that were inaccurate and incomplete. The reports failed to include its “Not Held” orders in the “Other” classification on the reports.
OATS Reporting
FINRA’s automated market surveillance program relies on accurate OATS data. The program is designed to detect manipulative activity and other federal securities laws and FINRA rules violations. Under FINRA rules, members receiving or originating an order have an obligation to record and report the order to OATS. FINRA rules also set forth the information required to be submitted in the ROEs.
During J.H. Darbie & Co., Inc.’s examination, FINRA sampled 50 orders for OATS compliance and identified 19 instances between August 2017 and February 2018 in which the firm transmitted ROEs to OATS that included inaccurate, incomplete, or improperly formatted data.
The firm’s default setting in its order management system – which it had used since February 2013 – was “A,” the designation for an institutional account. As a result, the firm wrongly labeled retail account orders submitted to OATS. Between February 2016 and January 2019, the firm submitted approximately 17,375 ROEs to OATS that included inaccurate, incomplete, or improperly formatted data. J.H. Darbie & Co., Inc. only learned of the issue through FINRA’s examination and did not take corrective action until February 2019.
Our Firm
If you have lost money with J.H. Darbie & Co., Inc., contact New York securities arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account. A FINRA restitution order does not preclude investors from pursuing their own claims to seek restitution or other available remedies. Investors harmed by Triad’s supervisory failures may have a claim against the firm.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.