Cybercriminals Assault BrokerDealers; Most BDs Bamboozled by MITB and Phishing Schemes

Posted on February 5, 2015 by admin

BrokerDealer.com blog update courtesy of extract below from 3 Feb WSJ story by Matthias Rieker

More than half of U.S. brokerage firms surveyed by regulators said they had been targeted by email scams aimed at tricking them into wiring away client money.

In many cases, brokers fell for the impostors and their firms had to reimburse their clients. Of the brokerage firms that received the fraudulent emails, 26% reported losses of more than $5,000, according to the Securities and Exchange Commission.

The SEC last year sampled 106 firms—57 broker-dealers and 49 registered investment advisers—to assess the industry’s cybersecurity risk.

On Tuesday, the regulator said 88% of the broker-dealers and 74% of RIAs it examined for its report had experienced some form of a cyberattack. The agency didn’t say in what years the attacks occurred.

The wealth-advisory industry has long been struggling with what security experts and advisers say has been an onslaught of fraudulent wire-transfer requests, many resulting from client email accounts being hacked. Fifty-four percent of broker-dealers and 43% of RIAs said they had received fraudulent emails seeking to transfer client money.

Fifty-four percent of broker-dealers and 43% of advisers said they had received fraudulent emails seeking to transfer client money.

For example, a former Morgan Stanley Smith Barney adviser—whose client’s email had been hacked—wired a total of $521,500 in four requests over two months last year. Also, a former Wells Fargo adviser failed to confirm two wire transfers for a total of $67,532 over two months in 2012 that turned out to be from an impostor.

The Financial Industry Regulatory Authority, Wall Street’s self-regulator, suspended and fined both advisers last month. Neither admitted or denied the allegations, and their firms fired them, according to Finra. Morgan Stanley and Wells Fargo declined to comment on the cases.

Like most firms, Morgan Stanley and Wells Fargo have strict procedures on how to thwart such scammers, but some advisers haven’t been vigilant enough to ensure the requests are actually from their clients. Of the broker-dealers that reported losses from fraudulent emails, a quarter said the losses were the result of employees not following the firms’ authentication procedures, the SEC said.

SEC chairwoman Mary Jo White says assessing the readiness of market participants and providing investors with information on how to better protect online investments from cyberthreats is an important focus of her agency.

Finra said that last year it brought 37 cases related to the improper transfer of investors’ money to third-party accounts.

“Cybersecurity threats know no boundaries,” SEC Chair Mary Jo White said in statement. “That’s why assessing the readiness of market participants and providing investors with information on how to better protect their online investment accounts from cyber threats has been and will continue to be an important focus of the SEC.”

The SEC also said it found that 58% of broker-dealers but only 21% of RIAs are insured against losses from cyberattacks. One broker-dealer and one adviser reported that they had filed claims, the SEC said.

For the full story from the WSJ, please click here

China IPO News Sequel Part 3: Film Industry Deals Land On IPO Cutting Room Floor

Posted on February 4, 2015 by admin

While the initial public offering market in China is percolating, it appears that film industry IPOs are not yet ready for prime time. Below BrokerDealer.com blog update courtesy of extract from 3 Feb edition of Hollywood Reporter

China Film Group’s planned $740 million stock market listing has been delayed after the state-owned colossus failed to provide sufficient documents for an initial public offering, local media reported.

Shanghai Film Group’s plans to raise $155.45 million from its listing have also been delayed because of insufficient documents, the Beijing Business News reported.

China’s film market is the second biggest in the world and has grown rapidly, and the listing of China Film Group and Shanghai Film Group is read as a sign of concerted effort to build up an infrastructure for future growth and help the industry compete with Hollywood.

However, local commentators say that regulators are trying to cool the pace of initial public offerings, as the market is becoming overheated with companies trying to gain access to the film and TV industry via backdoor investments and mergers.

A prospectus issued in June 2014 said China Film Group was trying to raise $740 million.

China Film is a giant in the Chinese film industry. In addition to producing, importing, exporting and distributing films, it also operates theater chains, sells film equipment and manages talent.

The newspaper quoted Peng Kan, research and development director of the Legend Media consultancy, saying that China Film Group had an advantage over other film companies because it provided greater distribution and also enjoyed government allowances and a favorable tax policy.

China’s biggest cinema chain, Wanda Cinema Line Co., raised $210 million in a Shenzhen stock exchange listing last month.

There are fears that regulators are trying to slow the pace of IPOs. Investors feared that IPOs had effectively been frozen before they resumed on the country’s two bourses in early 2014 after a hiatus of 14 months, allowing around 50 already approved companies to list on the Shanghai and Shenzhen exchanges.

China IPO Market Mints Two More Bejing Billionaires; Video Game Maker Kunlun Tech and Spring Airlines Execs Profit from China A-Share Market

Posted on February 4, 2015 by admin

BrokerDealer.com blog update courtesy of reporting from 3 Feb edition of Bloomberg LP.

Zhou Yahui, chairman and president of Beijing Kunlun Tech Co., became a billionaire after shares of the Internet video game developer more than doubled since its trading debut two weeks ago.

Zhou, 37, has a $1.7 billion fortune, according to the Bloomberg Billionaires Index. The stock surged by the 44 percent stock exchange limit at its trading debut on Jan. 21, and climbed by the maximum daily price increase of 10 percent for nine straight days.

The new billionaire is the second in China this week as investors are showing an increasing appetite for the nation’s initial public offerings. Kunlun Tech is also riding a rally in the Shenzhen Composite Index, which tracks equities on the smaller of China’s two stock exchanges, whose 8.3 percent return this year beat all benchmark indexes in Asia.

“Shares jumped because new stocks are rare in China’s A- share market,” said James Hu Jiaming, a Shanghai-based analyst from China brokerdealer Capital Securities Corp., adding that “online gaming has been riding a bull market since the second half of last year.”

There has been an “accelerated growth” in the online gaming industry, driven by the popularity of mobile-phone applications such as WeChat, he added.

The gains haven’t made Kunlun Tech expensive relative to its peers. The stock is trading at 34 times earnings, compared with 240 times for China’s information technology companies, according to data compiled by Bloomberg. The Shenzhen index has a multiple of 37.

Spring Airlines Co. Chairman Wang Zhenghua became a billionaire yesterday as the stock surged following the company’s initial public offering, the first for a Chinese airline since 2002.

Shares of the low-cost carrier also jumped 44 percent on its trading debut on Jan. 21 and rose by the daily limit for a ninth day today, pushing his net worth to $1.1 billion, according to the Bloomberg Billionaires Index.

Opus Bank Expands Into BrokerDealer Services

Posted on February 3, 2015 by admin

Brokerdealer.com blog update is courtesy of a press release from Opus Bank and found on MarketWatch

Opus Bank, a California-chartered commercial bank, provides high-value, relationship-based banking products, services, and solutions to its clients through its Retail Bank, Commercial Bank, Merchant Bank, and Correspondent Bank. They recently just expanded to provide brokerdealer services through a subsidiary called Opus Financial Partners.

Opus Bank (“Opus” or the “Bank”) OPB, -0.54% announced today that it has established and received regulatory approval for Opus Financial Partners, LLC (“Opus Financial Partners” or “OFP”), the broker-dealer subsidiary of the Bank. Opus Financial Partners will further enable Opus’ Merchant Bank to help its clients address their financial and advisory needs related to raising equity capital, targeted acquisition and divestiture strategies, general mergers and acquisitions, debt and equity financing, balance sheet restructuring, valuation, strategy, and performance improvement. Dale Cheney, Senior Managing Director, Head of the Merchant Bank, will also lead Opus Financial Partners.

Dale Cheney, Senior Managing Director, stated, “Opus Financial Partners’ capabilities complement Opus’ Merchant Bank by providing a comprehensive and integrated capital and advisory solution to lower middle-market companies, business owners, and private equity groups.” Cheney added, “The traditional investment banking model, with its layers of intermediaries and capital providers, is inefficient and outdated for today’s dynamic business environment where business owners and entrepreneurs are constantly challenged by limited time and resources. We partner with these executives and their companies to provide a sophisticated, one-stop capital and advisory solution that allows them to focus on building a successful business.”

Stephen H. Gordon, Opus Bank’s Founding Chairman, CEO & President, commented, “There is a void in the lower middle-market where access to debt and equity capital is limited and delivered inefficiently. Additionally, even successful companies that want to expand and grow their businesses typically don’t have access to the sophisticated M&A and other advisory services they need in order to capitalize on strategic opportunities and remain competitive. The capabilities provided through Opus’ Merchant Bank and through our broker-dealer, Opus Financial Partners, will help our clients to thoughtfully and strategically grow, capitalize or monetize their business.” Mr. Gordon concluded, “Having begun my career over 30 years ago as an investment banker, I recognize that we have an opportunity to fill a void and address a significant need by building a market-leading West Coast-based merchant bank that adheres to Opus’ entrepreneurial philosophy of partnering with our clients, as opposed to simply serving as transaction advisors.”

Finra Rule for BrokerDealers Cause Confusion

Posted on February 2, 2015 by admin

Brokerdealer.com blog update courtesy of JDSupra Business Advisor. Finra

The number of independent brokerdealers has continually decreased due to low interest rate. Many of these brokerdealers have joined up with already established financial firms and that’s where things get murky. Finra’s rule 1017 has caused a lot of confusion, this hopefully will help clear it up.

M&A transactions involving regulated broker-dealers often require Financial Industry Regulatory Authority (FINRA) approval under NASD Rule 1017. Such approval is required for any direct or indirect acquisition by a broker-dealer of another broker-dealer,1 change in control of a broker-dealer or “material change in business operations” of a broker-dealer.

Rule 1017 has gained prominence in light of recent consolidation within the independent broker-dealer industry, which experienced a decrease in broker-dealers registered as members of FINRA from 4,905 in 2008 to 4,105 as of October 2014.2 The consolidation has been driven by low interest rates (which have harmed independent broker-dealers by decreasing revenues from lending on margin) and difficult business conditions following the credit crisis. At the same time, the requirements of Dodd-Frank and other new regulations have imposed additional compliance costs on independent broker-dealers.

The timing and ultimate outcome of the Rule 1017 process are often critical factors in broker-dealer M&A transactions. Participants in broker-dealer M&A transactions may be unable, without FINRA assistance, to determine whether a transaction requires approval under Rule 1017. If Rule 1017 approval is required, uncertainties as to the likely timing for approval may further complicate the transaction.

Scope of Rule 1017 in the Context of M&A Transactions

A FINRA member broker-dealer that undergoes any of the changes described in Rule 1017 is required to file an application for FINRA’s approval under the rule. Some common examples of transactions requiring Rule 1017 approval include:

acquisition or disposition of a controlling block of the equity securities of a broker-dealer, or of an equity interest that represents less than a controlling interest but 25 percent or more of the outstanding equity securities of the broker-dealer;
acquisition or disposition of an asset management firm that includes a broker-dealer subsidiary or affiliate (such as a hedge fund management firm that uses a broker-dealer subsidiary to trade securities and/or raise capital for its funds and other products); and
acquisition or disposition of assets that will materially change the business operations of the acquiring and/or disposing broker-dealer, such as may be encountered in the acquisition of a material amount of revenues attributable to sales of securities (e.g., mutual funds).

FINRA approval is required as a condition to closing each of the foregoing types of transactions and, in many cases, requires a longer period of time than any other closing condition — thus becoming the “critical path” to completing the deal.

For the entire article, click here