Nine Firms to Pay Almost $300K in Fines, $32K Restitution

The Financial Industry Regulatory Authority ordered nine firms to pay a total of $297,500 in fines and nearly $32,000 in restitution for violating rules of the Municipal Securities Rulemaking Board.

The firms agreed to pay penalties without admitting or denying wrongdoing, according to FINRA’s monthly disciplinary report, released Tuesday.

The largest fine, $85,000, was levied against Dallas, Texas-based Southwest Securities Inc. for violations in 2009 and 2010 of the MSRB’s Rule G-32 on primary offering disclosures.

In 34 cases, Southwest did not deliver official statements to customers by the time of settlement and in 10 cases it did not submit official statements to the MSRB’s EMMA system within one day of receipt (but no later than closing), as required, FINRA said. The documents were submitted up to 18 days late.

In two other instances, Southwest did not submit advanced refunding documents to EMMA within five business days of closing, as required. Those documents were up to 93 days late, FINRA said.

Fidelity Brokerage Services LLC, based in Smithfield, R.I., was fined $65,000 for trading munis at prices that were not fair and reasonable, violating Rule G-17 on fair dealing and Rule G-30 on prices and commissions.

The firm charged unfair prices on 23 trades in the first and fourth quarter of 2008, FINRA said.

FINRA disclosed trade prices, but not the amount of markups or markdowns, for this firm and others.

A Fidelity spokesman said the violations relate to a “very small number of trades ... made during the extraordinarily volatile markets of 2008.” He added that the firm has strengthened its procedures to help ensure customers receive best execution.

Deutsche Bank Securities Inc. agreed to pay $35,000 for violating Rule G-14 on trade reporting and $2,500 for violating Rule G-8 on books and records in the third quarter of 2010.

The Manhattan-based firm did not report the correct trade time in 24 reports sent to the MSRB’s Real-time Transaction Reporting System (RTRS), failed to submit all the required information within 15 minutes of execution and reported some information twice, FINRA said. Deutsche Bank also did not show the correct execution time in 24 trade memoranda.

J.J.B. Hilliard, W.L. Lyons LLC, based in Louisville, Ky., agreed to a $35,000 fine and $23,875 in restitution for trading munis in 22 transactions at prices that were not fair and reasonable, violating rules G-17 and G-30. The violations occurred in the third quarter of 2008, FINRA said.

Sterne, Agee & Leach Inc. of Birmingham, Ala., agreed to pay $22,500 for trade reporting and other violations. In the third quarter of 2010, the firm did not report 173, or 2.5%, of its muni trades to RTRS within 15 minutes, violating G-14.

Also, in 57 instances in the fourth quarter 2010, Sterne, Agee & Leach did not report, in a timely manner, information related to interest-rate resets for variable-rate bond to the MSRB’s Short-term Obligation Rate Transparency System (SHORT), violating Rule G-34 on market information. 

G-34 requires dealers to report information, including the date and time of rate resets, to the MSRB by 6:30 p.m. Eastern Time on the day the reset occurred.

FINRA also found that the firm had inadequate supervision, a G-8 violation.

BMO Capital Markets GKST Inc., agreed to pay $17,500 in fines for violations related to reporting requirements between January and March 2009.

The firm did not report 78 trades to RTRS within 15 minutes and did not report the correct trade time in 80 reports,  FINRA said. BMO also did not document the correct execution time on 80 trade memoranda, violating Rule G-8, and violated Rule G-27 by having an inadequate supervision, said FINRA.

Stoever, Glass & Co., based in Manhattan, was fined $15,000 and ordered to pay $7,844 in restitution for charging prices that were not fair and reasonable in six transactions between October and December 2008, according to FINRA.

President Fred Stoever noted the trades accounted for 0.1% of the firm’s 6,000 trades during the quarter. Also, they happened shortly after the September 2008 collapse of Lehman Brothers Inc., which made bond prices volatile, Stoever said.

“Muni prices were all over the place,” he said. “It wasn’t quite so easy to determine exactly what bonds were worth at that time. That’s why the six slipped through the cracks.”

“We are always trying to improve,” he added. “It’s not policy to over-mark bonds.”

Legend Securities Inc., also based in New York, agreed to pay $12,500 for violating Rule G-14’s trade reporting requirements and G-8’s books and records requirements. The violations happened during the fourth quarter of 2010 and the first quarter of 2011.

The firm did not report the correct trade execution time in 91 trade reports sent to RTRS and did not report 517 transactions within 15 minutes, FINRA said. Legend also failed to record the correct execution time in 32 trade memoranda.

Greenwich, Conn.-based Timber Hill LLC, now called Interactive Brokers Group LLC, violated G-14 by failing to report 115 trades to RTRS within 15 minutes. The firm will pay a $7,500 fine.

With the exception of Fidelity and Stoever, the firms that were fined either declined to comment or did not return calls.




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