- within Intellectual Property, International Law, Litigation and Mediation & Arbitration topic(s)
A broker-dealer agreed to pay $250,000, as well as to a censure, to settle various FINRA reporting violations, including failing to disclose its sales compensation on preferred securities transactions to customers.
As described in a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer failed to:
- inform customers of $7.5 million in sales compensation regarding 11,500 preferred securities transactions effected in customers' accounts;
- disclose the use of average prices on trade confirmations sent to customers;
- execute marketable limit orders placed by telephone in a timely manner;
- submit required data to FINRA's Order Audit Trail System (or "OATS");
- record order receipt time in the correct format; and
- create and preserve order memoranda.
Additionally, FINRA alleged that the broker-dealer did not enact and maintain a sufficient supervisory system or written procedures reasonably designed to achieve compliance with securities regulations governing the recording of order times and the disclosure of compensation. As a result of its conduct, FINRA alleged, the broker-dealer violated various securities regulations, including:
- SEA Rule 10b-10 ("Confirmation of Transactions");
- SEA Rule 17a-3 ("Reports to Be Made by Certain Exchange Members, Brokers and Dealers");
- FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade");
- FINRA Rule 2232 ("Customer Confirmations");
- FINRA Rule 3110 ("Supervision");
- FINRA Rule 4511 ("General Requirements");
- FINRA Rule 5310 ("Best Execution and Interpositioning");
- FINRA Rules 7230A ("Trade Report Input") and 7330 ("Trade Report Input"); and
- FINRA Rules 7440 ("Recording of Order Information") and 7450 ("Order Data Transmission Requirements").
Primary Sources
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
