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November 2014 Archives

FINRA's Suitability Rule and the Institutional Investor

FINRA (Financial Industry Regulatory Authority) has adopted rules geared to protect retail investors, such as the Suitability Rule (FINRA Rule 2111). The Suitability Rule provides that a firm or its registered representatives must have a reasonable basis to believe that a recommended transaction or investment strategy is suited to the customer based on that customer's investment profile. A customer's investment profile includes such factors as the customer's age, other investments, financial situation and needs, investment objectives and risk tolerance.

FINRA Fines Firms for Excessive Markups and Markdowns

In the last few years, FINRA (Financial Industry Regulatory Authority) has taken a number of actions against firms for charging excessive markups and markdowns on bond transactions. In the last three years, FINRA has fined several firms for charging their customers excessive markups and markdowns. A markup/markdown is charged to a customer, (as opposed to a commission), on a principal transaction. In an agency transaction, the commission must be disclosed to the customer on the confirmation. However, markups or markdowns charged in principal transactions need not be disclosed.

Are you the victim of a Ponzi scheme?

The idea behind investing for most people is to make a profit and walk away with more money than they had when they initially invested. As a result, investment opportunities that will generate a high rate of return are often appealing. This is particularly true when the high rate of return is not tied to a lot of risk. Investors who are solicited such offers should be cautious however. The investment opportunity being offered could be a Ponzi scheme.

FINRA Fines Firms for Excessive Markups and Markdowns

In the last few years, FINRA (Financial Industry Regulatory Authority) has taken a number of actions against firms for charging excessive markups and markdowns on bond transactions. In the last three years, FINRA has fined several firms for charging their customers excessive markups and markdowns. A markup/markdown is charged to a customer, (as opposed to a commission), on a principal transaction. In an agency transaction, the commission must be disclosed to the customer on the confirmation. However, markups or markdowns charged in principal transactions need not be disclosed.

FINRA and MSRB Proposes to Provide Pricing Information for Some Bond Investors

We have often lamented about how investment banks have been taking advantage of retail and even institutional investors by charging excessive, undisclosed markups and markdowns on principal trades of bonds and other debt securities. Well, it looks like FINRA and the MSRP are taking some action to protect most retail investors. The regulators (FINRA for corporate bonds and MSRP for municipal paper) have proposed a rule change that would require broker-dealers to disclose the markups and markdowns charged to clients on principal purchases/sales of bonds in the face amount of $100,000 or less.

Securities fraud arrest could lead to more than criminal charges

There is likely an assumption on the part of most investors that the individual they are investing with has a certain level of education. Investors also probably also assume that the age of the person they are working with is commensurate with having attained that level of education. As investors in another state are finding this is not always the case. Multiple investors are now learning that the business they invested in, Stark Innovations, LLC, was headed by a man who was just 19 years old. That man was recently arrested by authorities in that state.