Oct 2, 2023

Business front of Fidelity Investments in the Financial District. (Angela Rowlings/Boston Herald, file) October 2, 2023 at 5:31 p.m. The Bay State has fined Fidelity Brokerage Services $750,000 over the company’s past practice of rubber-stamping options trading applications. Secretary of the Commonwealth William Galvin has handed down the fine to Fidelity in response to what he has referred to as a “half-hearted and lackadaisical attitude” toward safeguarding retail investors. In the consent order filed by Galvin’s Securities Division, the state notes that Fidelity has taken steps to improve its application review systems and online applications since last January. That’s when the Division filed a complaint alleging that Fidelity failed to properly vet customers who applied to be approved for options and margin trading. The Securities Division had said Fidelity’s application review system allowed customers to submit multiple applications, each time with the information altered until the customers met the requirements to be approved. The complaint detailed examples of repeated applications with inflated financials, investment experience, and employment information that Fidelity reviewers failed to notice — despite already having contrary information in the Fidelity system. “Options trading is considered to be particularly risky due to options’ relative complexity, their lack of liquidity, and the fact that just breaking even requires one to accurately predict short-term price fluctuations in the underlying asset,” Galvin’s office said in a statement. “Brokers determine an investor’s suitability for different levels of options trading based on their income, net worth, trading experience, and general knowledge of investing,” his office added. In addition to the $750,000 administrative fine paid to the state, Fidelity Brokerage Services has been censured by the Securities Division. Fidelity must also submit a report to the Division on the findings of an internal review of policies and procedures, including the improvements that have been made to compliance training. Fidelity said in a statement, “Fidelity fully cooperated with the Massachusetts Securities Division. As acknowledged by the MSD, Fidelity has already addressed the issue and has made enhancements to its system for approving customers for options trading.”