Broker Sales Data Sought in Finra's Surveillance Proposal

The biggest U.S. brokerages would have to give regulators monthly data on trades and commissions as part of a new surveillance system being designed to protect investors against abuses.

Customers’ personal information would be kept out of the reports proposed today by the Financial Industry Regulatory Authority, which is seeking comment on the plan. The system will enable regulators to detect sales of unsuitable investments or excessive trading intended to primarily benefit a broker, Finra Chief Executive Officer Richard G. Ketchum said in a telephone interview.

“I’d certainly anticipate enforcement actions more quickly when firms are systematically harming investors or placing them in unsuitable investments,” Ketchum said.

Finra, which conducted more than 7,000 examinations of brokers in 2012, said the Comprehensive Automated Risk Data System, or Cards, is part of an effort to take the guesswork out of oversight. The industry-funded regulator also is bidding to build a Consolidated Audit Trail, a system that will track the life of every stock quote, order and trade.

The new system would help replace an approach in which Finra has to obtain data from firms after it decides to examine them. The proposal drew widespread industry opposition when the regulator disclosed it last year, with some firms complaining that account data would be vulnerable to hackers and others saying Cards would overlap with other databases kept by Finra.

‘Important Concerns’

“Cards raises a number of important concerns, including investor privacy, data security, duplication of regulatory data collection with the pending CAT system and other cost-benefit concerns,” Ira Hammerman, executive vice president and general counsel for the Securities Industry and Financial Markets Association, said in a statement. “Sifma looks forward to providing further comment on these important matters, which should be resolved before consideration of any formal proposal.”

Finra said today it would roll out the system in two phases, the first stage consisting of information already kept by firms that hold customer assets. The second would seek data such as customers’ investment time horizons, risk tolerance, net worth and year of birth, as well as broker commissions.

Today’s release provides for a 60-day comment period. Finra hopes to send the proposal to the Securities and Exchange Commission for approval early next year, Ketchum said.

“We certainly expect there will continue to be industry opposition,” he said. “We hope there will be a careful focus from that standpoint, and many firms will realize what you get here is increased investor confidence and hopefully lower costs from firms that aren’t placing customers in concentrated, speculative positions.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE