Hilltop Securities Inc. agreed to pay a $170,000 fine as part of a settlement with Cboe Exchange, Inc.
The matter arose out of a review conducted by FINRA’s Division of Market Regulation regarding the Company’s compliance with its obligations to report listed options positions and related information in the Long Options Position Report (LOPR).
From or about June 1, 2020 to or about October 3, 2022, Hilltop, in approximately 58,656 cases, reported approximately 3,239 positions in the LOPR without an Acting in Concert (AIC) identifier and, in approximately 18,839 cases, failed to report approximately 501 positions as AIC.
These reporting violations were caused by the Company’s failure to properly collect, identify, and aggregate potential groups during gigs based on listing companies’ positions, coding issues in the Company’s third-party LOPR provider’s system, and human error.
From or about June 1, 2020 to or about June 18, 2022, due to a coding problem in the company’s third-party LOPR service provider’s system and human error, Hilltop failed to report approximately 1,173 positions to the LOPR on approximately 53,617 occasions.
From on or about June 1, 2020 to on or about March 31, 2023, another technology processing issue caused the Company to incorrectly report the account number for all records submitted to the LOPR on approximately 1.6 million occasions.
Specifically, when Hilltop moved LOPR reporting to a new service provider on or about June 1, 2020, the company changed its methodology for reporting account numbers and began adding a “1” or “2” to the end of each account number for differentiate between cash (“1”) and margin (“2”).
The acts, practices and conduct described in Paragraphs 7 through 9 constitute violations of Cboe Rule 8.43 by Hilltop in that the Company failed to report or inaccurately reported positions in the LOPR on approximately 131,112 occasions and did not accurately report the account number for all records submitted to LOPR in approximately 1.6 million cases.
From or about June 1, 2020 to or about March 31, 2023, Hilltop failed to establish, maintain, and enforce written supervisory procedures (WSPs) and supervisory systems that were reasonably designed to prevent and detect violations of the LOPR reporting obligations the company’s .
Specifically, although Hilltop’s WSPs included a process for identifying and reporting groups during concerts for its customers’ accounts, Hilltop failed to implement reasonable procedures or systems to collect information during concerts from its introducing brokers and identifying and aggregating capabilities into -concert groups based on the positions of its presenters. The Company did not have a process designed to check whether the information during the gig entered into its systems by its importing companies was reported accurately and completely.
Additionally, Hilltop’s WSPs related to the review of rejected LOPR records did not detail how such reviews would be conducted, and the company’s WSPs related to the resubmission of rejected LOPR records did not detail how to submit rejected records. The Company did not provide training to LOPR compliance staff on the proper use of the third-party provider’s system it used to repair records. Finally, Hilltop’s monitoring system was also not reasonably designed to detect the Company’s submission of inaccurate account numbers to the LOPR.
The acts, practices and conduct described in Paragraph 11 constitute violations of Cboe Rule 8.16 by Hilltop as the Company failed to establish, maintain and enforce supervisory systems, including WSPs, that were reasonably designed to achieve compliance with Cboe Rule 8.43.
In light of the alleged violations of the rules described above and the prior relevant disciplinary history, the company agreed to a reprimand and a monetary penalty of $170,000.