FINRA Fines Seven Bond B/Ds for Violations
June 22, 2009
The Financial Industry Regulatory Authority has fined seven firms a total of $184,500, including $80,000 for Tulsa-based BOSC Inc., for failing to timely or accurately report municipal securities, unfairly pricing bonds, as well as other muni and non-muni rule violations.
FINRA announced the sanctions in monthly disciplinary actions last week. Besides BOSC, it fined Charles Schwab $30,000, Stoever, Glass & Co. $20,000, Piper Jaffray & Co. $17,500, Finance 500 Inc. $15,000, Bonddesk Trading LLC $12,000, and Country Club Financial Services Inc. $10,000.
The firms consented to the FINRA fines without admitting or denying the charges, but declined to comment or could not be reached for comment.
FINRA found BOSC, in 11 pairs of transactions between Jan. 1, 2005, and March 31, 2005, bought or sold municipal securities at aggregate prices that were not fair and reasonable, taking into consideration "all relevant factors," including the best judgment of the broker/dealer as to the fair market value of the securities at the time of their transaction. The highest excessive markup was 11.17%, and one bond was marked down 9.36%.
FINRA found that the firm's conduct violated the Municipal Securities Rulemaking Board's Rules G-17 on fair dealing and G-30 on prices and commissions. In addition to the $80,000 fine, the firm agreed to pay $18,402 in restitution to investors for the unfair pricing.
FINRA also found that during the same review period, BOSC failed on 24 occasions to show correct terms and conditions on memorandums of 12 muni transactions, in violation of MSRB Rule G-8 on books and records. The firm's supervisory systems were also deficient, in violation of Rule G-27, FINRA said.
During another review period, from Jan. 1, 2007, through March 31, 2007, FINRA found that the firm failed to timely report 70 purchase and sale transactions through the MSRB's Real-Time Transaction Reporting System, in violation of G-14. The trade reporting system requires that most trades be reported within 15 minutes of execution.
San Francisco-based Charles Schwab was charged for failing to timely report municipal securities. FINRA found that between April 1 and June 30, 2007, Schwab failed to report information regarding 1,154 municipal transactions reported to the MSRB, in violation of Rule G-14. Schwab's late trades represented about 2% of the 52,555 muni transactions the firm reported to the MSRB during the review period, FINRA said.
Meanwhile, FINRA fined Stoever Glass for muni trade violations and supervisory failings. From Oct. 1, 2006, to Dec. 31, 2006, the firm failed to report information regarding 72 transactions in a timely manner, FINRA said. The late transactions comprised about 3.9% of all muni securities the firm was required to report during the review period. In 23 instances, the firm also incorrectly reported to the MSRB allocations of block orders. In addition, from July 1, 2007, to Sept. 30, 2007, it failed to timely report information regarding 251 transactions, representing about 5.8% of all such transactions during the review period, according to the self-regulator.
During the same period, Stoever's supervisory system did not provide "for supervision reasonably designed to achieve compliance with respect to the applicable securities laws and regulations, and the MSRB rules, concerning transaction reporting," FINRA stated.
FINRA fined Minneapolis-based Piper Jaffray for failing to timely report 433 muni transactions from Oct. 1, 2007, through Dec. 31, 2007, as well as for non-muni rules violations. About $5,000 of the fines were tied to the MSRB reporting failures.
Separately, FINRA fined Irvine, Calif.-based Finance 500 for nine transactions between April 1, 2006, and June 30, 2006, in which the firm bought or sold securities at prices that were not fair and reasonable, violating MSRB rules G-17 and G-30. Most of the munis were marked down as much as 4.90%. The firm already paid restitution to customers, FINRA said.
The self-regulator also fined New York City-based Bonddesk Trading for failing to timely report 163 transactions between April 1, 2007, and June 30, 2007, as well as for faulty supervisory procedures. During the same period, the firm reported data to the MSRB from 102 transactions that it was not required to report.
Finally, FINRA fined Kansas City, Mo.-based Country Club Financial Services for failing to report the "contra correspondent ID" on 73 reports sent to the MSRB between Jan. 1, 2007, and June 30, 2007. The reports constituted 98.6% of the total number of inter-dealer trade reports submitted by the firm to the MSRB during the review period. In addition, the firm was cited for supervisory deficiencies.
In a corrective action statement, the firm said that it has amended its policies and procedures to ensure that it is in compliance with G-15. A municipal principal or compliance officer will review all filings daily to ensure that reports are properly made to the MSRB and will document those reviews.
Regulatory Reform Plan Leaves SEC Unchanged
The financial markets regulatory reform plan that the Obama administration proposed Wednesday does not include changes to the structure or jurisdiction of the Securities and Exchange Commission, or to self-regulatory organizations that operate under it such as the Municipal Securities Rulemaking Board.
In addition, the creation of a consumer financial protection agency, which the administration also plans to propose, would not entail altering the SEC's responsibility for investor protection.
"The consumer agency would not have authority over SEC-regulated products and services," a senior administration official said. "The SEC and the new consumer agency would coordinate with each other to ensure that there are no gaps between investor and consumer protection coverage, and we anticipate that that will keep both agencies strong and focused on their core mission."
The official provided a broad outline of the plan that is organized into five primary areas, many of which were leaked by the administration in recent days ahead of Wednesday's proposal.
One area includes stronger oversight of financial firms, in part through a financial services oversight council chaired by the Treasury Department.
The other four include: strengthening of regulations in "core" markets such as derivatives; boosting consumer protections for financial products like mortgages and credit cards; giving the government additional tools to reduce the impact on the economy when large, interconnected firms fail; and the broad establishment of global regulatory standards.
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