A broker-dealer settled FINRA charges for failing to qualify and register two associated individuals who supervised customer securities trading activity.

In a Letter of Acceptance, Waiver and Consent, FINRA stated that two of the broker-dealer's associated persons that reviewed for (i) SEC Regulation NMS and SHO surveillance exceptions and (ii) customer trading activity that may have been manipulative were not registered appropriately. FINRA cited to its Rule 1220 ("Registration Categories"), which states that a person "shall be required to register with FINRA as a Securities Trader if, with respect to [certain] transactions . . . , such person is engaged in proprietary trading, the execution of transactions on an agency basis, or the direct supervision of such activities. . . ." FINRA found that, although the individuals in question "supervised" customer trading activity, the broker-dealer failed to ensure that the individuals were qualified and registered as securities traders with FINRA, in violation of FINRA Rules 1220(b)(4) ("Securities Trader") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $10,000 fine.


This enforcement action makes a somewhat questionable use of the term "supervision." One ordinarily thinks of "supervision," in the broker-dealer context, as referring to the direction and control by a "principal" at a broker-dealer of other employees of the broker-dealer. That seems not to have been the issue here.

The associated persons whose conduct motivated the enforcement action did not "supervise" customers, at least in the sense in which the word is ordinarily used. Rather, it would seem that the associated persons "monitored" customers' trading for improper activity. If their behavior is described as monitoring, rather than as supervision, it is not clear that there would have been a rule violation. In fact, it is not clear why the monitoring task could not have been performed by a compliance person.

FINRA should give additional consideration as to what is intended by the use of the term "supervision."

Primary Sources

  1. FINRA AWC: SogoTrade, Inc.

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.