Regulator Fines McNally Financial For Failure To Supervise

FINRA Sanctions McNally Financial For Failing To Supervise NT-ETPs, Options Trading

FINRA sanctioned McNally Financial Services Corporation (CRD#: 121196, San Antonio, Texas). Notably, the firm violated FINRA rules relating to supervision of non-traditional exchange traded products (NT-ETPs) and options trades. Soreide Law Group provides you with some of the key details about FINRA’s disciplinary action against this securities firm.

FINRA Issues Censure, $35,000 Fine To McNally Financial Services Corporation For Failing To Supervise

FINRA states that from March 2014 to March 2019, McNally Financial Services Corporation failed to supervise NT-ETP transactions. Notably, FINRA says that McNally had no alerts, restrictions, exception reports, or approval processes relating to NT-ETPs. The firm did not have a method for monitoring holding periods. Moreover, FINRA says that the firm failed to enforce its existing procedures. Supposedly, a securities broker made potentially unsuitable recommendations to investors as a result.
Evidently, McNally’s procedures did not address the features and risks of NT-ETPs. Specifically, FINRA says that McNally’s written supervisory procedures (WSPs) did not provide guidance concerning how supervisors should determine when an NT-ETP was suitable for an investor. It appears that the firm’s principal was responsible for reviewing 25 securities brokers’ trading activities. However, the principal lacked the tools to identify NT-ETPs.

Unsuitable Recommendations By McNally Securities Broker

FINRA says that a securities broker recommended NT-ETPs to older investors. It appears that the investors held them for years. The firm’s failure to detect these transactions and holding periods precluded it from knowing whether the transactions were suitable. Supposedly, McNally Financial Services Corporation did not check with the securities broker before these sales took place. Notably, the firm did not ensure that the broker understood the risks of holding these NT-ETPs for long periods.

McNally Purportedly Failed To Supervise Recommendations Of Options Trading

FINRA also says that from 2014 to 2019, the firm reportedly failed to supervise the same securities broker concerning their options trading strategies. Supposedly, this broker recommended options strategies for investors regardless of their investment profiles (net worth, age, investment experience). These strategies apparently involved purchasing options contracts at different strike prices and the same expiration dates, with the main objective of each strategy being to limit risk with a known maximum loss and maximum profit. However, the problem with this strategy, FINRA says, is that some trades carried much greater maximum losses than the maximum profits. Supposedly, the firm did not reasonably investigate concerns about whether the transactions were suitable.

What Does FINRA Say About Non-Traditional ETPs?

• NT-ETPs try to return a multiple of an underlying index or benchmark (known as leveraged ETPs), the inverse of that benchmark (inverse ETPs), or both, over usually one trading session. Notably, a trading session could be as little as a single day.
• NT-ETPs usually rebalance portfolios daily (known as a daily reset). This means that if an investor holds the NT-ETP for more than a day, then they face the effects of compounding daily returns during the holding period. The performance of NT-ETPs held for long periods can differ substantially from the performance of their underlying benchmark or index.
• FINRA says that brokers should generally not recommend or sell NT-ETPs to those investors who want to invest for more than one trading session, especially when markets are volatile.
• NT-ETPs are risky investments and are meant for those sophisticated investors who wish to actively monitor their portfolios.

Losses By Investing Through McNally Financial Services Corporation?

Evidently, McNally Financial Services Corporation denies the allegations made by FINRA. Have you experienced investment losses from McNally securities brokers or financial advisors? If so, reach out to Soreide Law Group at (888) 760-6552, where you can discuss your situation with an experienced lawyer concerning a possible recovery. Soreide Law Group represents clients on a contingency fee basis and advances all costs. The law firm has recovered substantial compensation for US clients who have experienced losses from their securities brokers and financial advisors.