A Seemingly Unprecedented Number of Sweeps.

[ by Howard Haykin ]

FINRA's 5th Sweep Examination of 2012 - aka Targeted Exam - is underway, and its scope is described in our Wednesday RULE NEWS post, FINRA SWEEP: Business Continuity Plans.  The SEC and the CFTC are involved in the planning and coordination. 

The regulators are testing the response of securities and commodities firms impacted by Hurricane Sandy - a move that is both timely and appropriate.  For residents, commuters and businesses within the low-lying waterfront communities of New York, New Jersey and Connecticut - the storm caused damage and disruption of unprecedented proportion.  In some areas, the impact of the damage and disruption will continue for many more months.  Other areas likely will never fully recover. 

An Unprecented Wave of FINRA Sweeps.   FINRA conducted no sweeps in the first half of 2012.  Over a 4-month period, from July to mid-November, five sweeps were implemented.  Firms saw only 2 sweeps for all of 2011.  On that basis alone, one might be inclined to conclude that FINRA is acting like a "Regulator Gone Wild."

But that simply isn't true.  Taking a look of the history of FINRA/NASD sweeps, and a very different pattern is revealed.  Here's the year-to-year numbers, followed by a list of the examinations - all linked to the letters sent to firms - taken from FINRA's "Targeted Exam Letters Web page.

• Business Continuity Plans (November 2012)
• Order Protection Disclosure Practices (October 2012)
• Spot-Check of Non-Traded REIT Communications (September 2012)
• Alternative Trading Systems (September 2012)
• Conflicts of Interest (July 2012)    [2012 = 5 ]

• Spread-Based Structured Products (November 2011)
• Spot-Check of Reverse Convertibles Advertising and Sales Literature (March 2011) [2011 = 2 ]

• Placement Agents (October 2010)
• Bank Broker-Dealer Services (October 2010)   
• Direct Market Access, Naked Access, Electronic Access or Sponsored Access ("DMA") (August 2010)
• Non-Investment Company Exchange Traded Products Communications (June 2010)    [2010 = 4 ]

• Retail Forex Trading (November 2009)
• Structured Products Review (July 2009)
• Retail Municipal Securities Transactions (June 2009)
• Retail Sale of "Gas Bonds" (May 2009)
• Municipal Underwriting and Municipal Derivative Instruments (May 2009)
• Exchange Traded Funds (May 2009)
• Sale and Promotion of Non-Traded REITs (March 2009)
• Hedge Fund Advertisements and Sales Literature (January 2009)     [2009 = 8]

• False and Misleading Rumors (July 2008)
• Information Barriers (January 2008)    [2008 = 2 ]

• Collateralized Mortgage Obligations (December 2007)
• Use of Professional Designations (September 2007)          [2007 = 7 ]