Compliance
FINRA Pulls Proposal To Eliminate 5% Rule As A Result Of Commentary
Tuesday, February 05, 2013 07:22

Tags: FINRA | regulation | trade

Two years ago FINRA initiated a proposal that would update guidance regarding the 5% threshold for markups and markdowns. Commentary warned FINRA not to do away with the rule.

 
Now, the regulatory organization has backtracked on its proposal to do exactly that. As of last Thursday, FINRA’s website has an updated proposal that keeps the 5% threshold in place.

This Website Is For Financial Professionals Only


 
Attorneys in the industry say that 5% is too much and the threshold should be more like 2% or 3%.
 
The Rule would be a component of Rule 2121 governing markups and markdowns and is part of FINRA’s continuing rule consolidation process.
 
FINRA is also trying to eliminate a proceeds rule that guides markups on round-trip transactions as well as a rule that mandates firms provide equity commission-rate schedules to clients.
 
The comment period ends April 1.

 

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FINRA Creates Interim Form For Crowdfunding Portals And Will Use Information Gathered To Formulate Rules
Friday, January 11, 2013 06:55

Tags: FINRA | regulation | sec

In a step closer to formluating crowdfunding rules, FINRA has created an interim form for prospective crowdfunding portals.

 

Information businesses voluntarily submit on the form will be used to design rules specific to the portals.

 

The information will guide development of the rules for both FINRA and the SEC.

This Website Is For Financial Professionals Only


 
FINRA and the SEC are in open dialogue discussing what the rules should look like.
 
The crowdfunding portals that submit information on the interim form will not be bound by their responses.
 
Once final rules have been developed, FINRA will issue a final registration form for FINRA regulation.
 
The rules are being designed to satisfy a mandate by the Jumpstart Our Business Startups (JOBS) Act that small businesses have easier access to capital.
 
Crowdfunding portals that file the interim form will offer FINRA important information that will help the regulatory organization design rules that will be in line with Congressional intent but that will also ensure adequate investor protection.

 

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FINRA Opens Comment Period On Compensation Disclosure Rule That Would Include Disclosing Signing Bonuses To Clients
Tuesday, January 08, 2013 08:13

Tags: fiduciaries | FINRA | registered reps

FINRA has opened a comment period on its proposed rule mandating disclosure of broker compensation including bonuses.
 
Member firms will be required to disclose financial incentives they offer recruits before they join the firm. The disclosure must be made before the recruit’s client accounts are transferred.
 
The rule is titled Regulatory Notice 13-02 and comments must be received by March 5.

This Website Is For Financial Professionals Only


 
Wirehouses are the primary FINRA firms who offer large signing bonuses to recruits to join their companies.
 
The bonuses are typically not disclosed and clients of the recruit are given some other explanation for the move.
 
FINRA feels the signing bonuses represent a conflict of interest and clients should be informed of the bonus incentives as well as all forms of broker compensation.
 
The new rule is also being viewed as a move toward treating brokers as fiduciaries, which brings to mind these questions:
 
Should brokers be treated as fiduciaries or should the traditional separation of services between brokers and advisors be restored?
 
Would the traditional broker model still have a place in today's environment?
 
You can make your comments here, either online or by mailing them to the address provided.

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Wells Fargo Advisor Who Bilked At Least A Dozen Clients Makes Front-Page News In Today’s New York Times
Monday, January 07, 2013 11:06

Tags: Dodd-Frank | FINRA | fraud

Philip Horn, a Los Angeles-based advisor at Wells Fargo who managed assets for ultra-high-net worth individuals is the subject of a story on the front page of today’s New York Times in a story about a fraud by financial advisors.

This Website Is For Financial Professionals Only


 

 

“While Mr. Horn is a relatively minor player in the pantheon of financial fraud, his actions highlight the persistent problems with policing the industry, even after the wave of rules enacted since the collapse of Bernard L. Madoff’s giant Ponzi scheme in 2008,” says the Times.

 

The story is a little strange because Horn’s fraud is not widespread and less than a $1 million in vestors funds are missing. Why cover this fraud, when others of a similar magnitude are occurring?

 

“Every month, the Financial Industry Regulatory Authority, a Wall Street watchdog, penalizes more than 100 brokers for various actions, including unauthorized trading and fraudulent activities, as well as smaller violations,” says the Times. But the story makes no serious effort at providing an understanding of the regulatory debate that’s been raging in Washington over how to regulate financial advisors.

 

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Hedge Funds Will Become More Of A Target For SEC When JOBS Act Provision Is Enacted
Thursday, January 03, 2013 20:36

Tags: hedge funds | regulation | sec

The SEC will be sharpening its monitoring of hedge funds wishing to get into the retail mutual fund space.
 
Bruce Karpati, Enforcement Division asset management unit chief, says that easier access to hedge funds has resulted in direct investment by unsophisticated retail investors.

This Website Is For Financial Professionals Only


 
The implementation of the JOBS (Jumpstart Our Business Startups) Act provision that eliminates the ban on general advertising and solicitation by hedge funds opens the door to wider abuse and fraud opportunities.
 
The SEC will be looking to make sure hedge funds have appropriate checks and balances in place to guard against conflicts of interest such as a portfolio manager valuing the fund’s assets.
 
Funds operating as fiduciaries under the Investment Advisors Act of 1940 must also guard against both conscious and unconscious incentives that could result in offering somewhat biased advice, even if it is offered unwittingly.
 
Hedge funds can likely expect to be examined more frequently and firms should be ready to implement corrective steps if the SEC finds violations. This will reduce more formal inquiries into fund operations.
 
Advisors to clients looking to invest in hedge funds can use this short SEC due diligence list to educate clients on hedge fund risks and what to look for when considering a hedge fund of funds or private hedge fund manager.

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