Broker-Dealer Settles FINRA Charges Of Initial Margin Interest Rate Disclosure Failures

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Cadwalader, Wickersham & Taft LLP

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A broker-dealer agreed to pay $250,000 to settle FINRA charges that it failed to provide customers with initial margin interest rate disclosures under Exchange Act Rule 10b-16
United States Finance and Banking

A broker-dealer agreed to pay $250,000 to settle FINRA charges that it failed to provide customers with initial margin interest rate disclosures under Exchange Act Rule 10b-16 ("Disclosure of credit terms in margin transactions"). FINRA noted that these disclosures are required in order to ensure that customers (i) understand what the margin interest charges would be before opening an account and (ii) are able to compare various available credit terms.

According to FINRA, the Axos Clearing LLC ("Axos") margin agreement did not include (i) the current base rate, (ii) an explanation of the relationship between the base rate and any publicly available rate or (iii) the mark-up used by the introducing broker-dealer. FINRA determined that Axos's supervisory system and written supervisory procedures were insufficient, and charged violations of NASD Rule 3010, FINRA Rule 3110 ("Supervision") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

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