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Small Potatoes: E*Trade Pays $350K Fine in Finra Settlement

Brokerage self-regulator Finra alleged E*Trade had inadequate supervision that allowed manipulative customer trading.
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Morgan Stanley’s  (MS) - Get Morgan Stanley Report E*Trade agreed with the Financial Industry Regulatory Authority to pay a $350,000 fine for allegations of inadequate supervision that allowed manipulative customer trading.

“From February 2016 through November 2021, E*Trade failed to establish and maintain a supervisory system … related to detecting potentially manipulative trading by its customers,” reads a consent letter signed by FINRA and E*Trade. FINRA is a self-regulator for the brokerage industry.

E*Trade should have implemented “written procedures, reasonably designed to achieve compliance with applicable securities laws and regulations,” the letter said.

The discount broker signed the letter without admitting or denying the accusations. Morgan Stanley bought E*Trade in 2020. E*Trade declined to comment to TheStreet.com.

E*Trade’s supervisory system was deficient for “detecting potentially manipulative trading involving wash trades, prearranged trading, and marking-the-close,” the consent letter said.

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“Wash trading is a process whereby a trader buys and sells a security for the express purpose of feeding misleading information to the market,” according to Investopedia.

Pre-arranged trading takes place at specified prices that were mutually agreed to before a trade’s execution.

“Marking the close is the practice of buying a security at the very end of the trading day at a significantly higher price than the current price of the security,” according to USLegal.com.

“The purpose of the practice of marking the close is to raise the closing price of the security, making it appear to be higher-valued than it actually is.”

In the end, the E*Trade violations seem like pretty small potatoes. The fine is puny and comes from a self-regulator rather than from the government.