U.S. SEC State Street $35mn Fine

On 7 September, SEC fined State Street $35mn for overcharges and disclosure.

  • State Street to pay over $35mn for fraudulently charging clients secret markups.
  • Bank and Trust Company to pay $3mn fine; and Global Markets, Global Advisors
  • Funds Distributors, and Bank and Trust Company agreed to pay in $32.3mn fines.

Transition Services

  • Scheme to overcharge transition management customers made $20mn revenue.
  • Fraudulently charged secret markups to institutional customers within transition.
  • Example of transition is if changing investment advisers or investment strategies.
  • Transitions often require the execution of large quantity of orders to buy and sell.
  • State Street said it would not apply commissions or charges, or apply a mark-up.

Overcharging Fees

  • Instructing traders to take mark-ups in certain trades despite contact to contrary.
  • Omitted material information with operation of platform for trading US Treasures.
  • On bond purchase and sales and securities that trade outside transparent market.
  • Sent false statements, pre-trade estimates and post reports, to mislead fee level.
  • A customer noticed error and asked employee who claimed it was “fat finger error”.

Trade Platform Disclosure

  • Marketed its bond trading system GovEx as fair and transparent, despite last look.
  • Provided one subscriber with “Last Look” trading functionality, that allowed a short
    period of time, for the subscriber, to reject a match to a quote they had submitted.
  • The subscriber used Last Look to reject 57 matches which had face value of $1mn.
  • Company did not inform counterparties that the orders were rejected in Last Look.
  • Bank told one subscriber told that GovEx did not have Last Look functionality at all.