Securities Roundup: FINRA Heightens Focus on Options Industry & Wants More Investors to Use BrokerCheck, Lawmaker Hopes SEC is Taking Closer Look at National Exchanges, and US Senator Calls For Reform of Money Market Mutual Fund Industry

At the Security Traders Association’s yearly market conference in DC, Richard Ketchum, Financial Industry Regulatory Authority’s chief executive officer and chairman, said that due to growing problems the SRO is heightening its surveillance and exam focus on the options industry. He noted that there has been an increase in complaints about the use of algorithmic activities to perform possible manipulations to “move underlying equity” and that this could cause a financial firm to “take advantage” of options positions that were pre-established.

Per BNA, Ketchum said that FINRA has set up surveillance alerts to catch too much messaging traffic from algorithms that update quotes at vicious rates when options are involved. It is also looking at firms to make sure they have adequate controls related to algorithms and it will keep checking for options orders that may have possibly inaccurate coding.

The week before, Ketchum reported that the FINRA Board of Governors had given the SRO’s staff the authority to propose to the SEC rule changes to promote greater investors use of BrokerCheck. This free tool allows investors to look up former and current firms and brokers that are registered with the SRO, and representatives and investment advisers, to decide whether the should work with them. (This information would also have to be available on websites that were maintained by/for an individual associated with these firms.) Per amendments that have been proposed to the FINRA Rule 2267, which covers the education and protection of investors, member firms would have to make sure that their company sites provide a direct link to BrokerCheck. Meantime, a change has also been proposed to FINRA Rule 8312 that would give the public permanent access to information available through BrokerCheck about foreign and state cases against associated persons who were let go after a settlement was reached. It would also per the board’s approval, make downloads of BrokerCheck information available.

In other securities fraud news, following the SEC’s announcement that the New York Stock Exchange will pay $5 million to settle first-of-its kind charges over compliance failures that allegedly gave some clients an advantage over others in regards to trading information, Senate Banking Securities subcommittee chair Senator Jack Reed (D-RI) said he “hoped” that this now means that the Commission will more closely scrutinize national exchanges’ activities. Reed, who spoke at the same Security Trader Association gathering as Ketchum, said the enforcement action could compel the national exchanges to seriously assess their for-profit model, which did not exist a few years ago.

Also hoping for the SEC to take additional actions is Sen. Bob Corker (R-Tenn.). He wrote a letter to SEC Chairman Mary Schapiro and the commissioners earlier this month urging them to find a “solution” on how to revamp the $2.6 trillion money market mutual fund industry. He is worried that the funds remain a “real risk” to the financial system and should a run of funds occur, Congress would have to make the difficult decision of letting investors sustain losses or rescue a fund or the industry.

His letter arrived weeks after Schapiro said she couldn’t come up with the needed votes to move forward a proposal that would have significantly reformed the money market industry. Schapiro has said that a run of funds situation continues to be a possibility.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities fraud lawyers are her to help investors recoup their losses.

Ketchum’s remarks at the Security Traders Association Annual Conference, FINRA, September 20, 2012

SEC Signaling Probe of Exchanges Through NYSE Fine, Reed Suggests, Bloomberg/BNA, September 24, 2012

Read Senator Corker’s Letter (PDF)

BrokerCheck, FINRA
More Blog Posts:
SEC Enforcement Roundup: Commission to Make Closer Examination of Revenue-Sharing Between Brokers and Investment Advisers, NYSE to Pay $5M For Alleged Compliance Issues, and Enforcement Director Khuzami Praises His Division’s Performance, Institutional Investor Securities Blog, September 18, 2012

SEC Commissioners Paredes and Gallagher ‘Dismayed’ Over Chairman Schapiro’s Announcement Regarding Failed Money Market Mutual Fund Industry Overhaul Proposal, Institutional Investor Securities Blog, September 7, 2012

Why Were Two Former Morgan Stanley Smith Barney Brokers Not Named As Defendants in Securities Lawsuit by State Regulators Over $6M Now Missing From Wisconsin Funeral Trust?, Stockbroker Fraud Blog, September 27, 2012

Contact Information