From January 2020 to August 2020, Cantor published public quarterly reports on its handling of customers’ orders in National Market System (NMS) securities that “failed to disclose required information and provided inaccurate and incomplete information,” according to FINRA in a Letter of Acceptance, Waiver, and Consent (AWC), published Aug. 17.
Cantor previously had been warned by FINRA in 2017 and 2019 regarding the accuracy of its NMS reports and had “corrected the reports at issue,” according to FINRA. However, in January 2020, Cantor’s published its Rule 606(a) report for the fourth quarter of 2019 “failed to disclose, as required, the material aspects of Cantor’s relationship with one of its specified execution venues, including a description of Cantor’s payment for order flow and profit-sharing relationship with the venue,” FINRA said.
In another example, FINRA alleged that Cantor’s published Rule 606(a) report for the first quarter of 2020 did not provide information required by amended Rule 606(a) regarding “NMS securities that are options contracts. In Cantor’s report, tables were empty instead of providing required data, and sections labeled ‘material aspects,’ which should have described Cantor’s relationships with specified execution venues, were blank,” FINRA said.
These failures constituted a violation of Rule 606(a) of Regulation NMS and FINRA Rule 2010. After FINRA uncovered the violations following a 2020 examination, Cantor published an amended report for the first quarter of 2020 in August 2020.
The amended report still had deficiencies, however, “in that it misidentified two execution venues, and it did not include required information on the net aggregate amount of payment for order flow received, payment from any profit-sharing relationship received, transaction fees paid, and transaction rebates received, both as a total dollar amount and on a per share basis,” FINRA said.
Supervisory Failures
From January 2020 through May 2020, Cantor further failed to establish and maintain written supervisory procedures (WSPs) “reasonably designed to achieve compliance with Rule 606(a), because the firm’s WSPs only addressed its obligation to report orders in listed options, not NMS stocks.” FINRA said Cantor addressed this particular deficiency in revised WSP in June 2020.
“Separately, from May 2020 through August 2020, Cantor failed to enforce its WSPs regarding Rule 606(a),” according to FINRA. “The WSPs required a designated supervisor to review its quarterly reports for compliance with Rule 606(a). The firm, however, did not review its report for the first quarter of 2020 prior to publishing it in May 2020 or the amended report prior to publishing it in August 2020, which resulted in the deficiencies described above.”
According to FINRA, Cantor took remedial measures after August 2020 “by making additional revisions to its WSPs, including to address the amendments to Rule 606(a) and recent guidance from FINRA and the SEC, and by implementing additional reviews of its reports prior to publishing.”
The above supervisory failures constituted violations of FINRA Rules 3110(a), 3110(b), and 2010. Cantor accepted and consented to FINRA’s findings without admitting or denying them. 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.