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Regulatory Sanctions

Failed Best Execution on Riskless Principal Bond Trades

October 19, 2018

by Howard Haykin


A Golden Valley, MN-based broker-dealer agreed to pay $22,500 in fines and restitution, and to revise its WSPs, to settle FINRA charges that it failed to provide best execution when, trading for its own account, it sold or bought corporate bonds to or from customers.


The firm is a self-described independent, full-service financial services firm providing private client and investment banking services to individual, institutional and corporate customers.


FINRA FINDINGS.    The Fixed Income Investigations Team of FINRA Market Regulation conducted a review of the firm's pricing of corporate bond transactions and related supervisory requirements for the third quarter of 2016. For that period, the staff cited 7 transactions on which the firm took too large a profit and, accordingly, it recommended restitution to customers. 


  • In each instance, the firm had conducted what amounted to a riskless principal transaction - i.e., when trading for its own account, the firm sold (or bought) corporate bonds to (or from) customers.
  • Whereas the firm took percentage profits ranging from 3.28% to 3.73% on its principal cost basis of each transaction, FINRA trimmed the acceptable profit down to 2.5%.
  • The firm was deemed to have violated FINRA Rule 2121 (Fair Prices and Commissions), FINRA Rule 3110 (Supervision), and FINRA Rule 2010.
  • Monetary sanctions broke down, as follows: $10K fine for fair pricing rule violations; $7.5K fine for supervisory rule violations; $5K in restitution to customers.


This case was reported in FINRA Disciplinary Actions for October 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016052229401.