[ by Howard Haykin ] RBC Capital Markets Corporation nka RBC Capital Markets, LLC, agreed to settle FINRA charges that it had failed to adequately supervise an RR who had engaged in unsuitable, excessive trading in elderly customers’ accounts, and exercised discretion in those accounts without the customers' authorization.  All told, customers lost $390K in their accounts. Background on Respondent. RBC Capital Markets Corporation ("RBC"), a FINRA member since March 1993, maintains its principal place of business in New York, and employs approximately 5,100 registered individuals operating from 284 branch locations throughout the country. Relevant Disciplinary History. (i) In January 2012, RBC agreed to an settle FINRA charges that the firm had failed to reasonably supervise mark-ups and mark-downs, and  failed to establish, maintain and/or enforce a supervisory system and WSPs reasonably designed to ensure customer markups and markdowns were compliance with relevant rules and regs.

(ii) In August 2010, RBC settled NYSE-Reg charges that it failed to implement adequate controls, including a reasonable system of followup and review designed to detect and prevent potentially violative wash trading activity on the ARCA marketplace.

(iii) From June 2007 through January 2010, NYSE-Reg or FINRA applied another 4 disciplinary actions against RBC – which we note but do not provide identifying information.

FINRA Findings and Allegations. Starting around March 2005 and continuing through at least August 2010 – a 5-1/2 year period – RBC allegedly failed to establish and maintain a supervisory system and establish, maintain and enforce WSPs reasonably designed to achieve compliance with applicable rules and regulations concerning short-term transactions in closed end funds ("CEFs").  The firm's alleged supervisory deficiencies caused the failure of RBC supervisory to prevent unsuitable CEF transactions recommended by one of its RRs.

For CEFs purchased at the IPO, the sales charges to the customer are built into the offering price.  The NAV of the underlying securities portfolio is below the public offering price.  Therefore, the market price for CEFs often declines after trading begins in the secondary market.  Consequently, CEFs purchased at the IPO are generally considered long-term investments and unsuitable vehicles for short-term trading.

During the relevant time period, RBC underwrote IPOs involving CEFs.  Yet, the firm failed to employ adequate internal controls and supervisory procedures to identify and deal with patterns of unsuitable short-term trading of CEFs, including those purchased at the IPO.

- e.g. - RBC's WSPs failed to address the suitability of recommendations involving CEFs, and further did not provide guidance to supervisors about potential abuses relating to short-term trading sales of CEFs purchased at the IPO.

- e.g. - RBC did not utilize any exception reports or other processes to detect short-term trading of CEFs.  The sole means available to firm supervisors to identify such trading was through the daily review of trade blotters - yet, given the hundreds of potential transactions supervisors were required to review daily, this was an ineffective system.

- e.g. - RBC's trade blotters didn't identify when the CEFs had been purchased or if they had been acquired at the IPO - so, firm supervisors lacked an effective way to determine how long a customer held a CEF before the sale. As a result of the firm’s supervisory deficiencies, the firm failed to timely detect and prevent the FFs registered representative’s unsuitable short-term trading of CEFs.

The firm also filed an inaccurate Form U5 for the broker, specifically in reference to a disclosure question about internal reviews.  RBC reported that the broker was not under internal review at the time of his termination when, in fact, he had been under such review. By filing an inaccurate Form U5, RBC violated FINRA Rules 1122 and 2010 FINRA Sanctions. RBC agreed to pay a $200K fine and $70K  in partial restitution to a customer. For further details, go to:  [FINRA AWC #2010022094901] and [FINRA Disc. Actions for July 2012].