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A broker-dealer settled FINRA charges for failing to develop and implement a sufficient supervisory system over sales of non-traditional exchange traded products (ETPs).
In a Letter of Acceptance, Waiver and Consent, FINRA stated that the broker-dealer allowed two of its registered representatives to sell unsuitable non-traditional ETPs to retail customers. FINRA also said that the broker-dealer's supervisory system and written supervisory procedures failed to address: (i) the risks associated with non-traditional ETPs, including the potential risks of long-term holding of products that reset daily; (ii) how supervisors should ensure the suitability of non-traditional ETP recommendations; (iii) the establishment of exception reports for the monitoring of holding periods; and (iv) formal training for registered representatives regarding the sale of non-traditional ETPs. FINRA noted that the broker-dealer's failures occurred despite FINRA's publication of guidance emphasizing that broker-dealers need to establish a reasonable supervisory system, and written supervisory procedures, focused on the risks and suitability of non-traditional ETPs (see FINRA Regulatory Notices 09-31 and 12-03) .
FINRA found that the recommended and executed trades resulted in losses for customers. As a result of its findings, FINRA determined that the broker-dealer violated FINRA Rules 3110(a) ("Supervision - Supervisory System"), 3110(b) ("Supervision - Written Procedures") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $35,000 fine, (iii) disgorgement of $2,982.84 in commissions and fees, plus interest, and (iv) restitution in the amount of $86,186, plus interest.
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