The Financial Industry Regulatory Authority and J.P. Turner & Co. have reached a settlement agreement over charges that the broker-dealer failed to put in place a proper supervisory system for making sure that its registered representatives charged clients reasonable and fair commissions on stock trades. By agreeing to settle, JP Turner is not admitting to or denying the charges involving inadequate supervision.
FINRA says that between January 2002 and March 2005, JP Turner failed to take certain relevant factors into consideration when determining how much commission they should charge clients for equity securities transactions. Instead, FINRA says that the broker-dealer let its brokers charge commissions of up to 4.5% on nearly every stock trade, with discretion on what commission to charge solely limited by whether the security’s price was higher or lower than $25/share. If the security’s price was under $25/share, FINRA says that JP Turner representatives could charge commission of up to 4.5%. They could charge commissions of up to 3.5% if the security price was higher than $25.
FINRA requires brokerage firms to put in place systems and “reasonable procedures” for determining what commission fee a customer should be charged for such transactions, while taking into consideration certain relevant factors. The SRO’s mark-up policy provides a list of these relevant factors, including: the kind of security, the price of the security, the transaction size, the order execution cost, and the availability of the security.
During the review period, FINRA says that 91% of JP Turner’s transactions involved securities priced under $25/share. While the broker dealer’s trading manager was in charge of reviewing and approving trades to make sure charges were reasonable and fair, the SRO says the reviews actually consisted of checking transactions to make sure that commissions did not go above the company’s 4.5% and 3.5% guidelines.
As part of its settlement with FINRA, JP Turner will pay $250,000. The broker-dealer has also agreed to retain an independent consultant who will evaluate for adequacy the company’s systems, policies, procedures, and training related to FINRA’s fair price ruling.
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