The brokerage regulator said that between January 2003 and May 2007, E*Trade Securities LLC and E*Trade Clearing LLC failed to provide necessary automated tools to detect suspicious trading activity.

It also said the New York-based online brokerage relied too heavily on employees to manually monitor for such problems, while processing more than 110,000 trades a day with "little or no" human intervention.

"Such an approach to suspicious activity detection was unreasonable given E*Trade's business model," FINRA said.

E*Trade did not admit wrongdoing, but consented to FINRA's findings, the regulator said.

Shares of E*Trade rose 9 cents to $1.24 in afternoon trading on the Nasdaq.

(Reporting by Jonathan Stempel, editing by Leslie Gevirtz)