BROWSE BY TOPIC
Stories of Interest
- Latham & Watkins Chair Bill Voge Resigns Over Sexual Messages
- Jefferies Equity Trading Slips Even as Volatility Increases
- Can Jes Staley Fix Barclays Fast Enough?
- Deutsche Bank Slides 6.2% After Warning of $550Mn Q1 Headwind
- UBS to Pay $230Mn to N.Y. in Mortgage Securities Probe
- With At Least 190 Cryptocurrency Exchanges, Here's How to Pick Right One
- Mark Zuckerberg Lost $9Bn in Wealth Over Past 48 Hours
- Keynote Address, ICI 2018 Mutual Funds & Investment Management Conference
- SEC Announces Largest-Ever Whistleblower Awards
- From a $126Mn Bonus to Jail: Fall of a Star Trader
- Barclays Shares Surge as Activist Takes 5.2% Stake
- Standard Chartered Puts Compliance Head Neil Barry on Leave
- Goldman Sachs Pays Women in U.K. 56% Less Than Male Colleagues
- Deutsche Bank Leads Bulls with Higher Trading Revenue Forecast
- SocGen Cuts Traders' Bonus Pool by a Quarter
- Point72's Haynes Resigns as Cohen Seeks a New Type of Leader
- Steve Eisman, Who Called the 'Big Short' During Financial Crisis, Sleeping Easy Now
- Bitcoin's ‘Death Cross’ Looms as Strategist Eyes $2,800 Level - From Current Price of $8,120
- U.K. Brokerage Firm, Investment Manager, CEO Manipulated Trading in U.S. Microcap Stocks - SEC
- Billionaire Investor John Paulson's Hedge Fund Is 'Rightsizing', And a Bunch of Senior Staff are Leaving
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
Unsuitable Non-Traditional ETFs – Firm Lacked Supervision
By Howard Haykin
Capital City Securities agreed to pay a $15K fine to settle FINRA charges that it failed to adequately supervise its registered reps who, over a 3-year period, sold unsuitable Non-Traditional ETFs to firm customers. A lower fine was imposed after considering, among other things, the firm’s revenue and financial resources.
FINRA FINDINGS. Capital City, a FINRA member since 2008 and a member of the MSRB, has 7 branch offices and about 20 registered reps. The firm had no prior disciplinary history.
From July 2011 to November 2014 (the "Relevant Period"), at least 10 of the Firm's reps sold leveraged and inverse exchange-traded funds (“Non-Traditional ETFs”) to customers, involving at least 500 transactions. Many of the firm's customers held these products for long periods of time, despite the increased risk presented when holding Non-Traditional ETFs over longer periods.
In June 2009, FINRA advised its membership in FINRA Regulatory Notice 09-31 concerning Non-Traditional ETFs that, "[d]ue to the effect of compounding, their performance over longer periods of time can differ significantly from the performance ... of their underlying index or benchmark during the same period of time." The regulatory notice further advised broker-dealers 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.”
During the Relevant Period, Capital City failed to reasonably supervise these sales, specifically because:
- Its WSPs did not address the unique features and risks associated with Non-Traditional ETFs.
- It didn’t have exception reports or surveillance tools to monitor holding periods for Non-Traditional ETFs.
FINANCIALISH TAKE AWAYS. Two basic take aways from this case:
- Firms should not registered reps to recommend or sell to customers any securities (products) that supervisory personnel do not understand.
- Written Supervisory Policies and Procedures ("WSPs") are living, working documents that need to be kept current, particularly for: (i) changes in a firm’s operations; (ii) new lines and areas of business; (iii) new or amended FINRA rules and regulations; and, (iv) FINRA pronouncements regarding critical risk areas and evolving regulatory priorities.
Apparently, Capital City Securities (and its senior management failed in both respects.
This case addressed in this article was reported in FINRA Disciplinary Actions for November 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014039216101.