On July 11, 2013, the Financial Industry Regulatory Authority (“FINRA”), announced that they and BATS Exchange, Inc., the New York Stock Exchange, NYSE Arca, and the NASDAQ Stock Market have censured and fined Newedge USA, LLC of Chicago $9.5 million.
Newedge is a prime brokerage and bank owned by Société Générale and Crédit Agricole CIB.
FINRA found that Newedge did not have sufficient procedures, adequate surveillance tools, or the necessary information to monitor clients’ direct market access (“DMA”) or sponsored access (“SA”) trading, and that the broker also violated Regulation SHO (“Reg SHO”) and SEC Emergency Orders regarding short sales. These violations took place over a four year period. Even though red flags were raised internally, Newedge failed to address the issues adequately.
For example, Newedge failed to monitor for certain type of manipulative trading, particularly wash trading, despite requests to do so made by its own compliance department. The broker was in fact unable to monitor some clients’ trading because it didn’t receive any order data showing their activity. It also lacked information about beneficial owners of some accounts using DMA through Newedge affiliates, which made it impossible for Newedge to check for potentially manipulative or suspicious activity. Finally, the firm failed to retain email and text messages.
Newedge’s failure to supervise its DMA and SA business affected its ability to ensure compliance with short sales regulations, including SEC Emergency Orders issued in the summer of 2008 restricting or prohibiting short sales in financial companies. It also accepted short orders without having a reasonable basis to believe the securities in question could be borrowed.
Thomas Gira, Executive Vice President of Market Regulation at FINRA, said, “If a firm is going to turn a blind eye toward potentially manipulative trading unleashed upon the market by one of its customers, this case shows that there will be serious consequences… As there were many triggers for this case, including referrals and information from BATS, NASDAQ and the NYSE, this case also illustrates how FINRA and the exchanges can effectively pursue activity that spans multiple markets.”
In settling with FINRA, Newedge neither admitted nor denied the charges levied against it, but consented to the entry of FINRA’s findings. The company will pay a total of $9.5 million in fines: $4 million to FINRA, $1.75 million to the NASDAQ; $1.75 million to BATS, $1.125 million to the NYSE, and $875,000 to NYSE Arca.
For further information about FINRA and SEC enforcement actions, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 201 S, Boca Raton, Florida, (561) 416-8956, firstname.lastname@example.org or visit www.securitieslawyer101.com This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the JOBS Act, crowdfunding, emerging growth companies, Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings please contact Hamilton & Associates at (561) 416-8956 or by email at email@example.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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