TAG | CMO markups
Comments off · Posted by Securities Lawyer in FINRA
Stone & Youngberg LLC (CRD #795, San Francisco, California)
submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $350,000 and ordered to pay $206,054.72, without interest, in restitution to customers. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it charged excessive markups on collateralized mortgage obligations securities (CMOs) transactions effected for retail customers. The findings stated that the firm failed to establish and maintain a supervisory system and procedures regarding the sale of CMOs to customers to ensure that its markups for retail trades were fair and reasonable. The group supervisor never instructed the trading supervisor, who also served as the firm’s CMO trader, how to assess the reasonableness of CMO markups. The findings also stated that as a result of these procedures, the firm performed CMO transactions with retail customers where the markup the firm assessed exceeded 4 percent of the current market price of the security. The amount of the CMO markups to these customers exceeding 4 percent was $206,054.72. These markups were excessive, in that they were not fair and reasonable when taking into account the circumstances of each trade. The findings also included that the firm failed to provide appropriate guidance regarding how to assess customer suitability for inverse floaters and failed to inform its sales force of Notice to Members (NTM) 93-73 regarding inverse floaters. Because of the firm’s lack of guidance, the firm permitted registered representatives to recommend the purchase of inverse floaters to retail customers who did not understand the risks involved, or whose investment objectives were moderate. FINRA found that the firm did not develop any of its own educational materials regarding CMOs, but purchased educational brochures on CMOs an association authored. At least one of these brochures met the informational requirements of Interpretative Material-2210-8 with respect to CMOs. Although the firm provided registered representatives with access to these brochures, each registered representative had the discretion to decide if and when to offer these brochures to their retail customers.
(FINRA Case #2009017769701)
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