FINRA Fines Southwest Securities, Schwab for Violations

The Financial Industry Regulatory Authority Inc. fined Southwest Securities Inc. $54,500 and ordered it to pay $23,394 to customers for municipal securities trade reporting and pricing violations as well as non-muni violations. FINRA also fined San-Francisco-based Charles Schwab & Co. $25,000 for muni trade reporting violations.

The sanctions were disclosed in the self-regulator’s latest monthly announcement of disciplinary actions released Friday. Officials from the firms either could not be reached or declined to comment.

The firms neither admitted nor denied the findings but agreed to accept them for settlement purposes, according to FINRA.

In the case involving Schwab, the authority said that, from April 1 through June 30, 2008, the firm failed to report information from 2,109 or 3% of its trades in a timely manner, violating the Municipal Securities Rulemaking Board Rule G-14 on reports of sales or purchases. The rule requires firms to report data from most municipal trades within 15 minutes of when they were executed.

FINRA also found that, from July 1 through Sept. 30, 2008, Schwab failed to report information about six block trades in a timely manner. The block trades constituted about 13% of those the firm reported during that time. The self-regulator censured and fined Schwab $25,000 after noting that it was previously fined in two separate cases for trade violations that occurred in May 2007 and January 2005.

In the Southwest Securities case, FINRA found that from Jan. 1 through March 31, 2007, the firm failed to report 126 or 3.5% of its trades in a timely manner in violation of Rule G-14. It also alleged that in two transactions the firm purchased for, or sold to, its own account muni securities at aggregate prices, including markdowns that were not fair and reasonable “taking into consideration all relevant factors.”

FINRA said these factors include “the best judgment of the broker, dealer or municipal securities dealer as to the fair-market value of the securities at the time of the transaction, the expense involved in effecting the transaction, the fact that the [firm] is entitled to a profit, and the total dollar amount of the transaction.”

The markdowns ranged from 5.23% to 5.45%, according to FINRA, and violated Rule G-17 on fair dealing and G-30 on prices and commissions.

Of the $54,500 fine, $5,000 was for MSRB trade violations and an unspecified part of $32,000 was for the G-17 and G-30 violations, FINRA said. The other sanctions involved stock and corporate debt.

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