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Deficient Supervisory Procedures Result in $1.1 Million Penalty

A large broker-dealer agreed to pay approximately $1.1 Million for supervisory failures related to short-selling of securities in violation of Rule 105 of Regulation M.  FINRA and BATS allege the firm sold securities short and then bought securities in the public offering within the restricted period.  FINRA asserts that the firm’s supervisory system was inadequate because the procedures did not (i) identify the person responsible for supervision of compliance with Rule 105, (ii) describe the supervisory steps required, (iii) define how often the supervisor should conduct reviews, and (iv) detail how to document the reviews.
OUR TAKE: The specific facts of this action are not as important as FINRA’s description of adequate supervisory procedures.  Adequate procedures must identify the person responsible, describe what he/she must do, and then mandate the required documentation.  

One comment

  1. Kevin Warmack says:

    Another key ingredient is that the procedures must and should be tailored to the way the firm supervises and conducts the activity. It is so very easy to get a procedure “off the shelf” and to discover that your method of supervison is no way near what you do to supervise the activity. If you really want to pay a large fine to FINRA or any other regulator, do just that.

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