The financial services firm Fidelity Brokerage Services has agreed to pay a $900,000 fine to settle charges from Wall Street's self-regulator. It highlighted flaws in the company's system for approving customers to trade options, which resulted in violations of the Financial Industry Regulatory Authority (FINRA) rules. The issue is about allowing very young investors to trade options.

FINRA Claims That a 19-Year-Old Cannot Trade Options

FINRA has announced that it has censured Fidelity and fined the firm for failing to exercise reasonable due diligence when approving customers for options trading from May 2017 through April 2022.

According to FINRA's probe, Fidelity's automated system for reviewing options trading applications had several shortcomings. Notably, it approved around 400 customers under the age of 19, which is against Fidelity's own eligibility criteria.

Fidelity requires users to have at least one year of experience with investment accounts to trade options. Since such an account can only be opened at the age of 18, individuals who had not yet turned 19 physically could not have gained such experience. Despite this, their applications were accepted.

Additionally, the system greenlit applications that had significant inconsistencies in reported income, net worth, and trading experience. Fidelity took steps to rectify these issues between February 2021 and April 2022. As part of the settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term, Fidelity has agreed to pay the $900,000 fine and accept censure, effectively resolving the FINRA investigation. However, the company neither admitted nor denied FINRA's findings.

The investigation revealed that Fidelity's flawed approval process violated the following FINRA rules:

• Rule 2360: Mandates firms to exercise due diligence when approving accounts for options trading.
• Rule 3110: Requires firms to have supervisory systems that are reasonably designed to ensure compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term.
• Rule 2010: Stipulates high standards of commercial honor and just and equitable principles of trade.

In June, Credit Suisse's US subsidiary paid a similar-sized fine. The case involved different issues but violated similar rules of the self-regulatory body.

Fidelity has recently been in the news mainly for its activities in the cryptocurrency market. The company submitted another request to create a spot Bitcoin ETF a few months ago. The firm's first application for this financial instrument was rejected in 2022, but amid a wave of new applications, the investment market giant decided to try again.