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February 11, 2016 4:51 AM ET

Diversified Financial Services

Company Overview of Financial Industry Regulatory Authority, Inc.

Company Overview

Financial Industry Regulatory Authority, Inc. (FINRA) is a trade association that provides regulatory, consulting, and advisory services focusing on financial services and securities brokerage companies. The organization offers registration, dispute resolution, federal securities law enforcement, market surveillance and analysis, and regulatory policy formulation and implementation services. FINRA, formerly known as National Association of Securities Dealers, Inc., was founded in 1938 and is headquartered in Washington, District of Columbia.

1735 K Street

Washington, DC 20006

United States

Founded in 1938





Key Executives for Financial Industry Regulatory Authority, Inc.

Executive Chairman of Board of Governors and Chief Executive Officer
Age: 64
Executive Vice President and Chief Financial Officer
Senior Vice President and Regional Director of New York Region
President of Dispute Resolution, Executive Vice President, and Chief Hearing Officer
Executive Vice President and Director of Dispute Resolution
Compensation as of Fiscal Year 2015.

Financial Industry Regulatory Authority, Inc. Key Developments

The Financial Industry Regulatory Authority Orders Barclays Capital, Inc. to Pay $13.75 Million for Unsuitable Mutual Fund Transactions and Related Supervisory Failures

The Financial Industry Regulatory Authority (FINRA) announced that it has ordered Barclays Capital, Inc. to pay more than $10 million in restitution, including interest, to affected customers for mutual fund-related suitability violations. These suitability violations relate to an array of mutual fund transactions including mutual fund switches. Additionally, the firm failed to provide applicable breakpoint discounts to certain customers. Barclays was also censured and fined $3.75 million. NASD Notices to Members 94-16 and 95-80 remind broker-dealers of their obligation to ensure that any recommendation to switch mutual funds be evaluated with regard to the net investment advantage to the investor. FINRA noted that ‘switching among certain fund types may be difficult to justify if the financial gain or investment objective to be achieved by the switch is undermined by the transaction fees associated with the switch.’ A ‘mutual fund switch’ involves one or more mutual fund redemption transactions coupled with one or more related mutual fund purchase transactions. FINRA found that from January 2010 through June 2015, Barclays’ supervisory systems were not sufficient to prevent unsuitable switching or to meet certain of the firm’s obligations regarding the sale of mutual funds to retail brokerage customers. In particular, the firm incorrectly defined a mutual fund switch in its supervisory procedures to require three separate transactions within a certain time frame. Based on this incorrect definition, Barclays failed to act on thousands of automated alerts for potentially unsuitable transactions, excluded transactions from review for suitability and failed to ensure that disclosure letters were sent to customers regarding the transaction costs. As a result, during the five-year period, there were more than 6,100 unsuitable mutual fund switches resulting in customer harm of approximately $8.63 million. Additionally, FINRA found that the firm failed to provide adequate guidance to supervisors to ensure that mutual fund transactions for its retail brokerage customers were suitable based upon customer investment objectives, risk tolerance and account holdings. During a six-month look back review, 1,723, or 39% of mutual fund transactions were found to be unsuitable, with 343 customers experiencing financial harm totaling more than $800,000, including realized losses. In addition, during the same five-year period, Barclays’ supervisory system failed to ensure that purchases were properly aggregated so that eligible customers could be provided with breakpoint discounts. A six-month look back review found that the firm failed to provide eligible customers discounts in 98 Class A share mutual fund transactions.

Financial Industry Regulatory Authority Fines Macquarie Capital (USA) Inc. $2.95 Million for Submitting Inaccurate Blue Sheet Data

The Financial Industry Regulatory Authority (FINRA) announced it has censured and fined Macquarie Capital (USA) Inc. $2.95 million for failing to provide complete and accurate trade data in an automated format when requested by the Securities and Exchange Commission (SEC) and FINRA. Also, Macquarie must conduct a comprehensive review of its policies, systems and procedures related to blue sheet submissions, and to subsequently certify that they have established procedures reasonably designed to address and correct the violations. The SEC and FINRA request trade data, or ‘blue sheets,’ to assist them in investigations focused on equity trading, including market manipulation and insider trading. Federal securities laws and FINRA rules require firms to provide this information to FINRA and other regulators electronically upon request. Blue sheets provide regulators with critical information about securities transactions, including the security, trade date, price, share quantity, customer name, and whether it was a buy, sale, or short sale. This information is essential to regulators’ ability to discharge their enforcement and regulatory mandates. FINRA found that from January 2012 to September 2015, Macquarie experienced multiple problems with its electronic systems used to compile and produce blue sheet data. This caused the firm to submit some blue sheets that misreported buys as sells and vice versa on allocations of certain customer trades, miscalculate the net amount of transactions, fail to report post-trade cancels and corrections, and fail to provide accurate customer information. FINRA also found that Macquarie failed to have adequate audit systems in place. In settling this matter, Macquarie neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Financial Industry Regulatory Authority Fines Cantor Fitzgerald

The Financial Industry Regulatory Authority (FINRA) announced that it has fined Cantor Fitzgerald & Co. $6 million and ordered disgorgement of nearly $1.3 million in commissions, plus interest, for selling billions of unregistered microcap shares in violation of federal law. Cantor Fitzgerald was also sanctioned for failing to have adequate supervisory or anti-money laundering (AML) programs tailored to detect 'red flags' or suspicious activity connected to its microcap activity. In addition, two of the firm's business executives were suspended and fined: Jarred Kessler, Executive Managing Director of Equity Capital Markets during the relevant period, was suspended for three months in a principal capacity and fined $35,000 for supervisory failures; and equity trader Joseph Ludovico was suspended in all capacities for two months and fined $25,000. FINRA found that Cantor Fitzgerald & Co.'s supervisory system was not reasonably designed to satisfy the firm's affirmative obligation to determine whether the microcap securities that it was liquidating for clients were registered with the Securities and Exchange Commission or subject to an exemption from registration. While Cantor Fitzgerald made a business decision to expand its microcap liquidation business in March 2011, it failed to ensure that its supervisory system included a reasonable and meaningful inquiry into whether these sales were lawful. Among Cantor Fitzgerald & Co.'s failings were insufficient guidance and inadequate training about when or how to inquire into whether a sale was exempt, and inadequate tools for supervisors to identify red flags associated with illegal, unregistered distributions. As a result of these failures, Cantor Fitzgerald and Ludovico, as the broker of record, sold billions of shares of thinly traded microcap securities between March 2011 and September 2012 without adequate review and due diligence, a significant portion of which were neither registered nor exempt from registration. These violations were accompanied by a failure to implement an adequate AML program tailored to detect red flags and patterns of potentially suspicious money laundering activity related to these sales.

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