BROWSE BY TOPIC
Stories of Interest
- Deutsche Bank ‘Beyond Repair’ as Trading Drops - Autonomous Research
- Guggenheim Partners CEO Might Step Down
- Wachovia Customer Sues Wells Fargo Over FundSource Losses - Bill Singer
- Credit Downgrade for Wells Fargo Due to Fake Account Scandal
- CFTC Commissioner Quintenz Named Sponsor of the Technology Advisory Committee
- Harbour and Geneos Customers Win FINRA Arbitration Against Stockbroker - Bill Singer
- Equifax Suffered a Hack Almost Five Months Earlier Than the Date It Disclosed
- The World’s Biggest Wealth Fund Hits $1 Trillion
- At Jefferies, Like Wall Street, Trading Cedes to Banking
- Ex-SAC Trader Who Pleaded Guilty to Insider Trading Just Remembered He’s Innocent
- JPMorgan Turns to Amazon for Retail 'Customer Experience'
- Goldman Sachs Names Ken Hitchner as New Chairman for Asia Pacific
- Judge All but Tosses SEC Case Against ‘Rogue’ Trader And Ex-FBI Informant Guy Gentile
- 'Boys are #1 Among NFL's Most Valuable Teams
- Fake Tax Returns - Your Next Worry After the Equifax Breach
- FINRA DR Recruiting Arbitrators, Mediators at Congressional Black Caucus Conference
- JPMORGAN: Here's who we think will replace Warren Buffett at Berkshire Hathaway
- Mueller to Search Facebook for Russia-Linked Accounts
- Mark Gomes, Market Analyst and Trade Scalper Settles with SEC
- Equifax Waives Credit Lock Fees For Consumers, Amid Criticism
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
Non-Traditional ETFs: Supervision Problems at Garden State Securities
by Howard Haykin
Garden State Securities agreed to a $25K fine to settle FINRA charges that it failed to establish, maintain, and enforce a reasonably designed supervisory system and WSPs regarding the sales of leveraged, inverse and inverse-leveraged exchange-traded funds (Non-Traditional ETFs). The fine also reflects the firm’s alleged failure to properly mark and report short sale transactions.
Non-Traditional ETFs are designed to return a multiple of an underlying index or benchmark, the inverse of that benchmark, or both, over only the course of one trading session-usually a single day. As a result, the performance of Non-Traditional ETFs over periods of time longer than a single trading session "can differ significantly from the performance . . . of their underlying index or benchmark during the same period of time.”
Because of these risks and the inherent complexity of these products, FINRA has advised B/D’s and their reps that Non-Traditional ETFs "are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets."
BACKGROUND. Garden State Securities (“GSS”), a Red Bank, NJ-based broker-dealer, has been in business since 1981. The firm conducts a general securities business, has 10 registered branch offices, and employs about 79 registered persons.
FINRA FINDINGS. From July 2011 through June 2012, GSS did not have adequate written supervisory policies and procedures (WSPs) for sales of leveraged, inverse, and inverse-leveraged exchange-traded funds (''Non-Traditional ETFs"). Such violations would be in violation of NASD Rule 3010 and FINRA Rule 2010.
Yet, during the period in question, more than a dozen GSS reps sold Non-Traditional ETFs to customers, many of whom held these products for periods longer than one trading session. These volatile positions went virtually undetected or left undisturbed because GSS supervisory personnel were ill-prepared to monitor these transactions:
- GSS had no WSPs that specifically addressed the suitability or supervision of Non-Traditional ETFs.
- GSS did not have a system that enabled the Firm's supervisory personnel to adequately review Non-Traditional ETF transactions to ensure their suitability.
- GSS supervisors had to rely on a manual blotter for review and detection of potentially unsuitable Non-Traditional ETF transactions, even though the manual blotter did not even differentiate between traditional and Non-Traditional ETFs.
- GSS had no exception reports specific to Non-Traditional ETFs, and failed to implement any system to monitor Non-Traditional ETF holding periods and losses.
This case was reported in FINRA Disciplinary Actions for June 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2013035131702.