TAG | Morgan Stanley & CO LLC
Comments off · Posted by Securities Lawyer in FINRA
This past Tuesday, May 1st., FINRA, the Financial Industry Regulatory Authority, Inc. fined four major brokerages $9.1 million for selling complex ETFs (Exchange Traded Funds) to investors whose portfolios were otherwise conservative.
Without admitting or denying the charges, the brokerges will be paying $7.3 million in fines, and $1.8 million in restitution to the clients who bought inverse and leveraged ETFs. Those brokerages are: Citigroup Global Markets Inc, Morgan Stanley & Co., LLC, Wells Fargo Advisors, LLC, and UBS Financial Services.
The chairman of the Senate Banking Subcommitte on Securities, Insurance, and Investment, Sen. Jack Reed, D-RI, announced that he will follow up on the hearing he held last October on ETFs with another hearing in the next few weeks.
“My hearing last fall shined a light on these products, which may be affecting market structure, volatility and price discovery and has the potential to harm investors,” Sen. Reed said. “I think this market deserves more attention from both domestic and foreign regulators, and I plan to hold another hearing on ETFs and related issues in the near future.”
Finra felt he brokerages it disciplined had failed to educate their reps about the complexities – and dangers – of leveraged and inverse ETFs, which hold derivatives and magnify market movements. The brokers then sold them to uninformed investors.
“The added complexity of leveraged and inverse exchange-traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficientily train their sales force before the products are offered to retail customers,” Brad Bennett, Finra executive vice president and chief of enforcement, said in a statement. “Firms must conduct reasonable due diligence and ensure that their representatives have an understanding of these products.”
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