Broker-Dealer Enforcement Cases and Developments: Fines & Restitution Record

Posted on February 26, 2015 by admin

Brokerdealer.com blog update is courtesy of the law firm, Morgan Lewis.

In a record year for enforcement, the SEC brought a landmark number of cases, and FINRA imposed an exceptional level of fines and restitution.

This LawFlash highlights key U.S. Securities and Exchange Commission (the SEC or the Commission) and Financial Industry Regulatory Authority (FINRA) enforcement developments and cases regarding broker-dealers during fiscal year 2014. The full 2014 Year in Review is available here.

The SEC

There were few significant personnel changes at the SEC last year. The Commission’s composition was stable in 2014 with Chair Mary Jo White continuing to lead the SEC. The other commissioners are Luis A. Aguilar, Daniel M. Gallagher, Kara M. Stein, and Michael S. Piwowar. Notable changes were made with appointments in two major SEC divisions (Stephen Luparello was named the director of the Division of Trading and Markets, and Stephanie Avakian was named the new deputy director of the Division of Enforcement). New directors were also appointed to lead the Philadelphia and Atlanta regional offices.

The enforcement statistics compiled by the SEC during fiscal year 2014 (which ran from October 1, 2013 through September 30, 2014) set several records. Other aspects of the enforcement program led the Commission to dub fiscal year 2014 “A Year of Firsts.”

In fiscal year 2014, the SEC brought a record 755 cases, a figure likely boosted by the number of open investigations carried over from the prior year. Moreover, the SEC’s actions resulted in a record tally of monetary sanctions being imposed against defendants and respondents.

With respect to its caseload, in what has become a trend, the SEC brought 7% fewer cases against investment advisers and investment companies—130 cases in fiscal year 2014, compared to 140 actions in fiscal year 2013. To contrast, in fiscal year 2014, the SEC reversed its downward trend from fiscal year 2013, bringing 37% moreactions against broker-dealers—166 in fiscal year 2014, compared to 121 in fiscal year 2013. Nevertheless, taken together, the SEC continues to devote significant resources to investigating regulated entities: cases in these areas have represented about 39% of the Commission’s docket in each of the last two fiscal years.

After a sharp decline in 2013, the Commission brought 52 insider trading cases in fiscal year 2014, an 18% increase from fiscal year 2013, but this increased number is still lower than the fiscal year 2012 total. We will see in the coming year how changes to the legal landscape may affect the SEC’s enforcement in this particular area.

FINRA

An interesting enforcement record emerged at FINRA last year. Although it instituted fewer disciplinary cases in 2014, its fines doubled from the prior year. Moreover, the amount of restitution that FINRA ordered in 2014 more than tripled the amount that had been returned to investors in 2013.

Specifically, in 2014, FINRA brought 1,397 new disciplinary actions, a noticeable decline from the 1,535 cases initiated in 2013. Along the same lines, FINRA resolved 1,110 formal actions last year; 197 fewer cases than it had in the prior year. With respect to penalties and restitution, in 2014, FINRA levied $134 million in fines (versus $60 million in 2013) and ordered $32.3 million to be paid in restitution to harmed investors (versus $9.5 million in 2013).

FINRA’s use of Targeted Examination Letters seems to be declining. In 2014, FINRA posted only two letters on its website, versus three in 2013 and five in 2012. Last year’s letters sought information on cybersecurity threats and order routing/execution quality. (In February 2015, FINRA published its Report on Cybersecurity Practices.)

To read the entire article from Morgan Lewis, click here.

Southeastern Grocers Steps Out of IPO

Posted on August 19, 2014 by admin

BrokerDealer.com blog post courtesy of extract from 247wallst.com and Jon C. Ogg

A form “RW” was filed with the Securities & Exchange Commission by a company named Southeastern Grocers LLC on Tuesday. While this might not sound like much to most people, this means that the current owner and operator of supermarket chains Winn-Dixie and BI-LO has now formally withdrawn its plans to conduct an initial public offering. Southeastern Grocers is based in Jacksonville, Florida and it had first initially filed with the Securities & Exchange Commission almost a full year ago to conduct an initial public offering for up to $500,000,000 worth of common stock.

The original filing showed that the underwriters hired for the offering were to be Citigroup, Credit Suisse, Deutsche Bank Securities, William Blair, and Wells Fargo Securities. Do we dare ask if their salespeople couldn’t sell yet one more grocery chain to the public – particularly one that had previously filed for bankruptcy.

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3rd Biggest US BrokerDealer Says SEC Should Slash Exchange Fees To Make Trading More Transparent

Posted on August 13, 2014 by admin

BrokerDealer.com blog update courtesy of extracts from Bloomberg LP and Traders Magazine

(Bloomberg) — Citigroup Inc., the third-biggest U.S. brokerdealer, told regulators they could steer more stock trading to public exchanges by making it more affordable.

The bank suggested the U.S. Securities and Exchange Commission cut the highest amount that can be levied to trade by at least two-thirds, according to a letter from Daniel Keegan, head of Americas equities at Citigroup. Most exchanges charge the maximum, 30 cents per 100 shares, leading traders to favor lower-cost dark pools, he wrote. His statement aligns Citigroup, which runs alternative trading platforms, with two of the biggest exchange operators.

Citi’s Daniel Keegan

As part of a rule change that took effect in 2007, the SEC “somewhat arbitrarily established a cap on access fees that can be charged to access liquidity on exchanges,” Keegan wrote in an Aug. 7 letter posted on the regulator’s website. “This cap should be revisited in light of today’s market economics.”

More than 15 percent of U.S. equity volume takes place on dark pools, according to Tabb Group LLC. NYSE Group Inc. and Nasdaq OMX Group Inc., two of the three big U.S. stock exchange owners, have both advocated regulatory measures to lure trading off the systems. Accusations of wrongdoing on the private systems have intensified this year amid Michael Lewis’s “Flash Boys” and a probe by New York’s attorney general, who alleged Barclays Plc misled its dark-pool clients.

Dark pools proliferated in the past decade as brokers sought to reduce the amount of money they pay the NYSE and Nasdaq Stock Market. Instead of giving exchanges trading fees, brokers could match buyers and sellers on their own systems.

The SEC’s Regulation NMS, which took effect in 2007, helped solidify that business model by allowing stock trades to occur on whatever market had the best price at a given time, be it public or private. Reg NMS also set the maximum exchange access fee at 30 cents per 100 shares, also known as 30 mils.

Citigroup’s LavaFlow Inc. division runs the 10th-biggest alternative trading system for U.S. stocks and charges 28 mils for shares priced above $1. It’s an electronic communication network, not a dark pool, meaning more data about trading is publicly available.

Citigroup’s suggestion of reducing the access-fee cap to 10 mils or lower could also restrain rebates that exchanges pay traders who facilitate transactions, a practice known as maker- taker that has been attacked by lawmakers and critics such as IEX Group Inc. and the chief executive officer of NYSE’s owner, Intercontinental Exchange Inc.

Rewarding Brokers

Stock markets use fees from traders to reward brokers who send them orders, a model some academics and money managers such as Invesco Ltd. and T. Rowe Price Group Inc. say creates a conflict of interest. Last month, Senator Carl Levin, a Michigan Democrat, told the SEC it should abolish the payments to improve confidence in U.S. stock markets.

Jeffrey Sprecher, the CEO of ICE, said during a recent congressional roundtable that exchange access fees should be reduced. His company, as well as Nasdaq, have endorsed a proposal called the trade-at rule, which would keep stock trades off dark pools unless those venues improved upon prices available on exchanges.

Nasdaq, operator of the largest exchange by volume, generated $1.1 billion in revenue from U.S. equities transactions in 2013 and gave out $743 million in rebates, according to an SEC filing. The comparable figures at NYSE Euronext, the owner of the New York Stock Exchange that ICE bought in November 2013, were $1.06 billion and $796 million, respectively, in 2012.