Pershing hammered with $1.4M fine over variable-rate security errors

investmentnews.com:

Finra slapped Pershing with a $1.4 million fine for distributing over one million account statements and trade confirmations containing inaccurate interest rate information on variable rate securities.

The discrepancies persisted for more than a decade, from January 2010 to December 2022, and also extended to the firm’s online access portals for customers and registered representatives, according to the regulator.

Pershing, a member of Finra since 1973, offers clearing services to more than 450 introducing firms and carries accounts on both fully disclosed and omnibus bases.

In an AWC document published Wednesday, Finra said Pershing’s failure to ensure accurate interest rate information led to violations of multiple regulations, including Exchange Act Rule 17a-3(a)(8), NASD Rule 2340 (for conduct prior to May 2019), and Finra Rules 2231 (for conduct from May 2019), 4511, and 2010.

These inaccuracies affected account statements, trade confirmations, and information provided through online portals.

The issues stemmed from two primary sources. Firstly, from January 2016 to September 2022, a third-party vendor failed to update interest rate information for at least 13,000 foreign variable rate securities.

“As a result, for each such security, Pershing’s security master system continued to reflect the initial interest rate, even after the security’s interest rate had changed,” Finra explained.

Secondly, from 2010 to 2022, Pershing’s system had coding that often blocked the listing of zero percent interest rates for certain variable-rate domestic bonds. This caused the system to retain the most recent non-zero interest rate instead. For example, in 2019 and 2020, this resulted in approximately 2,900 domestic bonds being