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Regulatory Sanctions

FINRA Cites Raymond James for Lapses When Dealing with Advisory Clients

May 25, 2017
Things can get complicated when associated persons of a broker-dealer handle transactions with clients of an affiliated advisory firm - and sometimes this means retraining traders on how to deal with advisory clients. In this cited case it also means that supervisors must tighten up reviews of daily trade blotters. [All in all, some good advice.]


Raymond James & Associates (‘RAJA’) agreed to pay $180K, revise its WSPs and address training of associated persons to settle FINRA charges related to transactions on its convertible bonds desk.


BACKGROUND.    The St. Petersburg, FL, firm has been a member of FINRA since1964, and its registration remains in effect. The firm has no relevant disciplinary history.


FINRA FINDINGS.    The Fixed Income staff of FINRA's Department of Market Regulation conducted a Reg. D review of RAJA's handling of convertible bond trades for advisory clients of RAJA and one of its affiliates for a 15-month period (4/1/11 - 6/30/12.


During the review period RAJA's convertible bonds desk in NYC, in 99 instances, sold bonds to another B/D in a principal capacity and concurrently (within a few minutes or less) either: (i) purchased the same amount of bonds from that B/D in an agency capacity for a RAJA advisory client or clients, or (ii) purchased the same amount of bonds from the B/D in a principal capacity for an advisory client or advisory clients of the Affiliate.


RAJA’s CV Bond Desk Knew or Should Have Known.   Since RAJA's CV bonds were offered on a conditional basis, its CVBonds desk needed to manually accept any attempt by a 3rd party to lift its offer off the Alternative Trading System used, Accordingly, the convertible bonds desk knew that there was an attempt to lift RAJA's inventory for the exact same quantity of the same convertible bond that RAJA was concurrently looking to buy such bonds for an advisory client.


RAJA’s ‘Loose’ Daily Trade Blotter Reviews.    While RAJA's WSPs pertaining to managed accounts generally prohibited principal trades with advisory clients and established trading system functionality limitations to preclude principal fills directly for advisory clients, RAJA's supervisory oversight over its CV bonds trading didn’t include, among other things, ongoing reviews of daily trade blotters that might detect potentially violative conduct – i.e., specific trading patterns, of failure to comply with applicable rules and regs, such as Section 206(3) of the Investments Advisers Act of 1940.


Section 206(3) prohibits any investment adviser from engaging in or effecting a transaction on behalf of a client while acting either as principal for its own account, or as broker for a person other than the client, without disclosing in writing to the client, before the completion of the transaction, the adviser's role in the transaction and obtaining the client's consent.


This case was reported in FINRA Disciplinary Actions for May 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2011030345701.