Tag Archives: finra

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ETF News, Strike Price

Finra Sends Brokers Notice of Spoofing

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“Report Cards” Delivered to Brokerages Citing High-Speed Manipulative Practices, Including Spoofing and Layering

(WSJ) –Finra, the securities industry’s self-regulator sent out its first monthly “report cards” to brokerage firms warning about manipulative superfast trading practices, marking the beginning of an effort to encourage the firms to cut off traders that aren’t playing fair.

The Financial Industry Regulatory Authority said it made the grades available to brokerage firms Thursday, identifying potential evidence of manipulative practices by firms or their customers. The report cards, which aren’t made public, focus on spoofing and layering, two practices that involve traders submitting orders they don’t intend to execute with the goal of moving prices and capitalizing on the change.

“Spoofing” is an illegal practice in which a trader with long position enters a a buy order for that security and immediately cancels it without filling the order in an effort to artificially create a demand for that security so as to induce other investors to then issue their own buy orders at a higher price, which increases the appearance of heightened demand. The first investor then closes his/her long position by selling the security at the new, higher price.

“These types of manipulation take advantage of other investors and harm public confidence in market integrity,” Finra Chairman and Chief Executive Richard Ketchum said in a news release. “We expect that the firms will use the data to enhance their own surveillance and move swiftly to cut off potential market manipulation.”

The move is part of a broader regulatory effort to stamp out devious practices in response to high-profile cases of alleged manipulation, such as​the case involving ​Navinder Sarao, the British trader accused of contributing to the 2010 stock market “Flash Crash.”

Finra wouldn’t say how many firms received the report cards, but a spokesman said it was “a large number.”

The report cards are designed to help brokers identify shady traders that might place buy and sell orders across several brokerage firms to carry out a scheme. But they also won’t preclude Finra from bringing enforcement actions against brokerage firms involved in manipulative trading, or referring investigations to the Securities and Exchange Commission.

For the full story from the WSJ, click here

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ETF News, People Profiles

Cantor Fitzgerald Gets $7.3mil Spanking From FINRA

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(BrokerDealer.com)- The Financial Industry Regulatory Authority (FINRA) has given a $7.3mil spanking to broker Cantor Fitzgerald  consisting of a $6 million fine and an order to pay $1.3 million for commissions, plus interest, it received from selling billions of unregistered microcap shares in violation of federal law in 2011 and 2012. In addition to its role broking a broad assortment of securities, Cantor is one of the securities industry’s leading ETF brokers.

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Frmr Head of Equities Jarred Kessler

In addition to the monetary fines, FINRA suspended Jarred Kessler, executive managing director of equity capital markets, for three months in his principal role at the firm and fined him $35,000 for supervisory failures, while equity trader Joseph Ludovico was suspended for two months and fined $25,000. The regulator also sanctioned Cantor for not having adequate supervisory or anti-money laundering programs to detect “red flags” or suspicious activity tied to its microcap activity. The suspension of Kessler from serving in a principal role for Cantor has proven to be an exercise, as the 5-year Cantor employee resigned from the firm last week.

“If a broker-dealer is looking to increase its revenues by expanding a high-risk business line, the firm and its supervisors must tailor their supervision to the risks associated with those businesses. This is especially true when the new business involves the mass liquidation of microcap securities, which presents overwhelming risks of fraud and investor harm,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement.

“FINRA has no tolerance for firms and business executives who choose to engage in this business without robust systems designed to ensure that they do not become participants in illegal, unregistered distributions,” Bennett said.

Kessler resigned from the firm last week to pursue “a significant opportunity,” according to his lawyer, Ross Intelisano, of Rich, Intelisano & Katz LLP.In settling this matter, Cantor Fitzgerald neither admitted nor denied the charges, though it did consent to FINRA’s findings.

For the full story, please visit BrokerDealer.com

 

ETF News

New Rules: B-Ds Can Skirt Finra Research Rules When It Comes to ETFs

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MarketsMuse ETF update profiles just-passed-by-Congress legislation that offers a sigh of relief for broker-dealers who aspire to frame ETF recommendations within the context of research (which might qualify them for ‘buyside research votes’), but have held back from issuing a buy, sell or hold recommendation for ETFs out of fear of Finra and/or SEC staffers sanctioning them.

All can guess that those lobbyists engaged by ETF issuers and sell-siders  who focus heavily on ETFs will be getting a hefty bonus in consideration for greasing the wheels and halls of Congress and helping brokerdealers creatively usurp Finra rules and regs when it comes to what is and what is not considered “research.” One group of folks not celebrating: top brass and salesman at Morningstar (read further)

Here’s the extract of the news from InvestmentNews.com

ETF Legislation approved this week by the House Financial Services Committee would allow broker-dealers to publish ETF research reports without the reports being considered offers to buy shares in the ETF.

The measure was co-authored by Rep. French Hill, R-Ark., and Rep. John Carney, D-Del.

A freshman legislator who came to Capitol Hill after working as a broker , Mr. Hill said most broker-dealers do not publish ETF research for fear of violating securities laws.

“This is a commonsense proposal,” Mr. Hill said at a May 20 committee hearing before the panel passed the bill. “With close to six million U.S. households holding and using ETFs, investors need access to this research.”

DOUBLE-DIGIT GROWTH

The ETF market has experienced double-digit annual growth over the past few years and, as of the end of April, included 1,496 funds with $2.1 trillion in assets, according to figures from Morningstar Inc.

As ETFs occupy a greater share of both retail and institutional investor portfolios, there’s a growing demand for insight about the vehicles, said Ben Johnson, director of global ETF research at Morningstar.

“There is a clear need for more research, more analysis across a very wide swath of the U.S. investor base,” Mr. Johnson said.

He said Mr. Hill’s bill is a good idea because investors would benefit from ETF research in the same way that they now can find research on individual securities and mutual funds.

If brokers issue their own ETF research, it could encroach on Morningstar’s turf. Morningstar can disseminate research through a so-called publisher’s exemption that applies to research organizations that aren’t regulated as securities firms.

“Any time there’s competition in the research space, that’s good for investors,” Mr. Johnson said. “It forces everyone to up their game.”

To continue reading this story from InvestmentNews.com, please click here

Fixed Income, Tech Talk

Finra, Fixed Income and FinTech—Fixing What Folks Keep Saying is Broken

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MarketsMuse blog update profiles a proposal from FINRA which proposes pre-trade transparency for fixed income automatic trading systems operators. This update is courtesy of  Traders Magazines’ article, “A Step Closer to a Fixed-Income NBBO” with an excerpt from the article below.

A modest proposal made by the Financial Industry Regulatory Authority (FINRA) aims to have fixed-income alternative trading system (ATS) operators to submit a weekly report that contains all of their quotation data for TRACE-eligible corporate and agency debt-securities to the regulator.

Such data would help FINRA better surveil the growing electronic fixed-income market, especially retail trades, according Robert Colby, the chief legal officer at FINRA.

“We would love to have this information,” he said when speaking the Investment Company Institute’s capital markets conference. “We do not get them now, so we are not super familiar with it. We’ve gotten it in batches at times but are not familiar with it enough to know how to work it into our surveillance system, which is our primary line of interest.”

FINRA officials declined to comment on the proposal further citing that it was still out for comment at press time.

According to the proposal’s text, FINRA would not disseminate the ATS-provided data publicly and use it solely for regulatory and surveillance purposes. However the text also states that FINRA may analyze the data for “the potential value and feasibility of public dissemination in the future.”

To read the entire article from Traders Magazine, click here.

ETF News, Tech Talk

Finra Steps Up Investigation Of Broker-Dealer Order Routing Rebate Schemes; Conflict of Interest Endemic to Current Market Structure

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NYSE CEO Says “Not Good” while appearing before Senate on the topic of equities market structure and Maker-Taker Rebate Schemes.

Bowing to increasing pressure from regulators, law makers and law enforcement officials, Finra, the securities industry “watchdog” has launched its own probe into how retail brokers route customer orders to exchanges, according to recent reporting by the Wall Street Journal’s Scott Patterson.  In particular, through the use of “sweep letters” targeting various broker-dealers, Finra is purportedly focused on whether rebates associated with schemes that brokers receive when directing their orders to specific venues is a violation of conflict of interest rules, given that customers presume they are receiving best price execution when in fact, they often do not.

MarketsMuse, the securities industry blog that has long reported about payment-for-order-flow and the unsavory practice in which customer orders are “sold” by custodians and prime brokers to “preferenced liquidity providers,” who then trade against those customers and profit from price aberrations between multiple exchange venues and dark pools, takes pride in pioneering the coverage of this topic.

Now that main stream media journalists are beginning to “get it”,  a growing number of those following this story hope that WSJ’s Patterson and other journalists will shine light on the even more unsavory practice in which these same brokers imposing egregious fees on customers who wish to “step out” aka “trade away” and direct their orders to agency-only execution firms, whose role as agent is to objectively canvass the assortment of marketplaces and market-makers in order to secure truly better price executions for their institutional and investment advisory clients. Continue reading →

ETF News

Finra Fines Wells Fargo, Three Others Over ETF Sales

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Citigroup Inc. (C), Morgan Stanley, UBS AG (UBSN) and Wells Fargo & Co. (WFC) agreed to pay a combined $9.1 million to settle regulatory claims they failed to adequately supervise the sale of leveraged and inverse exchange-traded funds in 2008 and 2009.

The firms also didn’t have a reasonable basis for recommending the securities to their clients, the Financial Industry Regulatory Authority said today in a statement. They will pay fines of about $7.3 million and reimburse $1.8 million to customers.

“The added complexity of leveraged and inverse exchange- traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficiently train their sales force before the products are offered to retail customers,” Brad Bennett, Finra’s chief of enforcement, said in the statement.

Finra warned brokers in June 2009 that leveraged and inverse ETFs were difficult to understand and not a good fit for long-term investors. ETFs typically track indexes and trade throughout the day on an exchange like stocks. Leveraged versions use swaps or derivatives to amplify daily index returns, while the inverse funds are designed to move in the opposite direction of their benchmark.

Because gains or losses in the funds are compounded daily, returns of more than one day can differ from expected returns gauged by the underlying index.

Firm Assessments

Wells Fargo, based in San Francisco, was assessed the highest fine at $2.1 million and must pay $641,489 in restitution. Citigroup, based in New York, received a $2 million fine and must pay $146,431 in restitution; New York-based Morgan Stanley will pay a $1.75 million fine and $604,584 in restitution; and Zurich-based UBS will pay a $1.5 million fine and $431,488 in restitution.

In settling the claims, the firms neither admitted nor denied the charges, said Washington-based Finra, the brokerage industry’s self-funded regulator.

For more on this “believe-it-or-not, this sh*t still happens story”, please go to Bloomberg LP; the first reader comment is a doozy!

ETF News

FINRA Investigating ETNs after Credit Suisse’s TVIX ‘Snafu’

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The regulator that oversees the sale of investment products to investors is investigating how firms are marketing exchange-traded notes, a niche product that experienced a market meltdown this year.

A spokeswoman for the Financial Industry Regulatory Authority said Thursday the regulator is “looking at the events and trading” activity surrounding a sharp plunge in the price of an exchange-traded note designed to track stock market volatility.

FINRA began its inquiry after the Credit Suisse-managed VelocityShares Daily 2x Short-Term exchange-traded note, or ETN, lost half its value in just two days earlier this month.

But FINRA’s review is not limited to the volatility ETN, the spokeswoman said. “We have a review underway looking at a host of issues relating to ETNs and other complex products,” the spokeswoman said.

Exchange-traded notes are debt securities issued by banks and were first brought to market in 2006 as a way for sophisticated traders to make bets on different parts of the market.

But recently, retail investors have begun trading ETNs as one way to get exposure to popular sectors of the market like silver, gold and natural gas.

To be sure, the dollar value of ETNs is small, roughly $18 billion. The volatility ETN managed by Credit Suisse, for instance, had about $700 million in assets at its peak. By contrast, the dollar value of better-known exchange-traded funds, or ETFs, is $1.2 trillion.

People Profiles

Tip-Toeing Into Social Media: Watch Wedbush

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Whether you’re sitting inside a buy-side or a sell-side firm,  someone in your shop is talking about using social media. But, you’re compliance officer is saying  “Let’s let another shop experiment..we don’t need to be the SEC test case.”

Well, Wedbush Securities isn’t standing on ceremony. Just a few years shy of their 60th birthday, this “old-timer” isn’t letting legacy stand in its way, and is taking steps to leverage applications that have proven to change the course of history and  has launched a social media initiative offering employees a way to engage in social media conversations on platforms including Twitter, LinkedIn, and Facebook.

In an interview with Industry mag “MarketsMedia”,  Wedbush VP of Marketing Natalie Taylor said, “Through proper training and resources, we felt confident in our decision to allow our team to be ‘social’ and engage in organic communication.” But wait, there’s more!