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.
- 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.
- 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.