Broker-Dealers Cited by Finra for Spoofing


Finra Sends First Set of  “Report Cards” To Brokers Citing High-Speed Manipulative Practices, Including Spoofing and Layering

( –Finra, the securities industry’s self-regulator sent out its first monthly “report cards” to brokerage firms warning about manipulative superfast trading practices, marking the beginning of an effort to encourage the firms to cut off traders that aren’t playing fair.

The Financial Industry Regulatory Authority said it made the grades available to brokerage firms Thursday, identifying potential evidence of manipulative practices by firms or their customers. The report cards, which aren’t made public, focus on spoofing and layering, two practices that involve traders submitting orders they don’t intend to execute with the goal of moving prices and capitalizing on the change.

“Spoofing” is an illegal practice in which a trader with long position enters a a buy order for that security and immediately cancels it without filling the order in an effort to artificially create a demand for that security so as to induce other investors to then issue their own buy orders at a higher price, which increases the appearance of heightened demand. The first investor then closes his/her long position by selling the security at the new, higher price.

“These types of manipulation take advantage of other investors and harm public confidence in market integrity,” Finra Chairman and Chief Executive Richard Ketchum said in a news release. “We expect that the firms will use the data to enhance their own surveillance and move swiftly to cut off potential market manipulation.”

The move is part of a broader regulatory effort to stamp out devious practices in response to high-profile cases of alleged manipulation, such as​the case involving ​Navinder Sarao, the British trader accused of contributing to the 2010 stock market “Flash Crash.”

Finra wouldn’t say how many firms received the report cards, but a spokesman said it was “a large number.”

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FINRA Focused On Firms’ Culture

FINRA culture

(TradersMagazine) BrokersDealers, get ready for your culture check close-up.

As FINRA examiners make their rounds this year, they will put firms’ culture under the microscope. Wall Street’s chief regulator is turning its attention to the tone set by senior leaders and supervisors, asking whether the culture they create supports compliance, risk management and ethical conduct throughout the  brokerdealer organization.

The industry regulator last week published its annual letter outlining its examination priorities for the new year, putting the industry on notice that, along with firm culture, FINRA examiners will be looking broadly at issues around supervision and liquidity, as well as a host of other areas ranging from cybersecurity to how brokers work with elderly clients.

In a statement accompanying the exam-priorities letter, FINRA CEO Richard Ketchum explains that the focus on culture comes in response to the failure of too many firms to establish a compliance-driven ethos that rejects self-dealing and where brokers and advisors consistently place clients’ interests ahead of their own.

“Nearly a decade after the financial crisis, some firms continue to experience systemic breakdowns manifested through significant violations due to poor cultures of compliance,” Ketchum says. “In 2016, FINRA will be looking for firms to focus on their culture and whether it is putting customers first and promoting risk management adaptable to a changing business environment.”

Not One-Size-Fits-All

While FINRA says that it plans to “formalize” its method for assessing a firm’s culture in 2016, the industry regulator insists that it is not going to be overly prescriptive and hold brokers to a one-size-fits-all standard for what an appropriate culture should look like.

“Our goal is not to dictate a specific culture, but rather to understand how each firm’s culture affects compliance and risk management practices,” Ketchum says.

At the same time, FINRA is working toward a more objective set of criteria to evaluate the culture of a firm, and says that it will complete the review of incentives and conflicts of interest in the retail brokerage sector that it began late last year. Through those sweep exams, FINRA has been collecting information on how firms navigate conflicts of interest in areas like proprietary products and the compensation structure for registered reps.

The mechanism for evaluating a firm’s culture that FINRA expects to finalize in 2016 will draw on five criteria:

Whether control functions are valued within the organization

Whether policy or control breaches are tolerated

Whether the organization proactively seeks to identify risk and compliance events

Whether immediate managers are effective role models of firm culture

Whether sub-cultures (such as at a branch office or trading desk) that may not conform to overall corporate culture are identified and addressed
FINRA explains that it expects firms to take “visible actions” to mitigate conflicts of interest and promote the clients’ interests, and to adopt a zero-tolerance policy for violations of the organization’s protocols.

Additionally, FINRA intends to focus on the four areas where it has observed firms falling down in their supervisory procedures: Conflicts of interest, Technology, Outsourcing, and Anti-money laundering programs.

Cybersecurity will be a chief focus as examiners review firms’ technology operations. Officials at FINRA and the SEC have been warning the industry to sharpen its focus on protecting information systems and client data in the face of constantly evolving and widely varied cyber threats.

“While many firms have improved their cybersecurity defenses, others have not — or their enhancements have been inadequate,” FINRA cautions in its letter.

This article originally appeared on the website of Traders’ sibling publication Financial Planning.

FINRA Chief Honcho Calls It Quits

FINRA Chairman Richard Ketchum

FINRA CEO Richard Ketchum will retire from the brokerdealer industry’s self-regulatory organization by the latter part of next year.

According to coverage from, FINRA’s board of governors is expected to look internally and externally for a successor.

Ketchum has been a critic of the Department of Labor’s proposal for a fiduciary standard for the wealth management industry. In May, he warned that the proposal comes with inadequate guidance to help firms navigate conflicts and ensure that they are engaging in appropriate compensation models when serving retirement plans or individual investors. maintains the global financial industry’s most comprehensive database of broker-dealers operating in more than 30 countries across the world.

Ketchum, 64, came to FINRA in 2009 from the New York Stock Exchange, where he was CEO of NYSE Regulation, and in the aftermath of the financial crisis. The industry veteran’s career includes 14 years with the SEC, where he was director of the Division of Market Regulation for more than half of his tenure with the agency.

“He worked tirelessly to protect and educate investors while also improving the integrity of the markets,” SEC Chairwoman Mary Jo White said. “Investors are better protected and our markets are stronger because of Rick Ketchum.” Ketchum continues to serve as a member of the SEC’s Market Structure Advisory Committee.

FINRA’s lead governor, Jack Brennan, praised Ketchum “as a champion of initiatives such as the High Risk Broker program, improvements in BrokerCheck, the expansion of TRACE reporting of asset-backed securities, and the expansion of FINRA’s responsibilities across stock and options trading.”

During his tenure at FINRA, Ketchum said in a statement that the organization’s accomplishments were based on a “commitment to excellence in our core competencies: examinations, enforcement, rulemaking, market transparency and market surveillance.”

“Investor protection is our principal reason for being, and I have been honored to work with an incredibly dedicated and talented group of professionals who take this vital mission seriously,” he said.

SIFMA CEO Kenneth Bentsen Jr. said Ketchum was at the forefront of every major milestone in the evolution of the U.S. securities markets over the last 40 years. “He has made his mark in ensuring a robust, efficient and pro-investor marketplace, and we wish him all the best in his retirement,” Bentsen said.

Finra Chief Says This About Broker-Dealer Fiduciary Rules

Richard Ketchum, Finra update profiles Finra Chairman Richard Ketchum’s position on the topic of broker-dealer guidelines and respective fiduciary standards.

Below extract is courtesy of FA Magazine

Calling a fiduciary rule for broker-dealers a “must,” Financial Industry Regulatory Authority Chairman and CEO Richard Ketchum laid out model guidelines Wednesday.

Ketchum said the standard is needed because too many brokers are pushing complex financial products on investors without appropriate fee and risk disclosures.

The regulator said a more stringent customer-focused standard for brokers other than suitability is also advisable because some firms continue to approach conflict management on a haphazardly and some fail to adequately discuss potentially higher fees involved in IRAs to permit a customer to make a fully informed decision.

He said the standard should be based on three essential tenets: active identification and management of firms’ conflicts; dramatically improved disclosure of risks associated with the product and product-related fees, firm and third party incentives; and more effective management of the compensation incentives to registered persons.

“The best interest standard should make clear that customer interests come first and that any remaining conflicts must be knowingly consented to by the customer,” said Ketchum.

To protect retail investors from conflicts of interest, the Finra CEO said the rules should require brokers to have an ongoing process to identify conflicts which could be costly to investors and develop written supervisory procedures to address how those conflicts would be eliminated or managed.

Also key to an effective fiduciary standard would be enhanced disclosures through an annual Form ADV-like document annually providing clear, plain English descriptions of conflicts, and all product and administrative fees, said Ketchum.

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