Sterne, Agee & Leach, Inc. (CRD #791, Birmingham, Alabama) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $125,000 and required to revise its written supervisory procedures (“WSPs”) regarding best execution of fixed income corporate securities transactions. See FINRA Case #2008014729901.
Without admitting or denying the findings, Sterne, Agee consented to the described sanctions and to the entry of findings that it failed to report transactions in TRACE-eligible securities to TRACE within 15 minutes of the execution time, and failed to report the correct execution time for these transactions to TRACE. FINRA also found that Sterne, Agee failed to show the receipt and entry times and the correct execution time on the brokerage order memoranda relating to these bond transactions. As a result, the firm’s records gave the appearance that the trades were executed later than they were.
In addition, Sterne, Agee failed to use reasonable diligence to ascertain the best inter-dealer market in transactions for or with customers, and failed to buy or sell in such market so that the resultant price to its customers was as favorable as possible under prevailing market conditions.
Further, FINRA found that Sterne, Agee failed to reasonably and properly supervise the activities of its associated persons to ensure compliance with applicable securities laws, regulations, and FINRA rules regarding recordkeeping, TRACE, and fair pricing of fixed income securities transactions. FINRA also found that Sterne, Agee failed to reasonably supervise its recordkeeping of customer orders to ensure the records reflected accurate times of order receipt, entry and execution, and failed to reasonably supervise TRACE reporting to ensure that the execution times of customer orders promptly and accurately were reported to TRACE within 15 minutes of execution.
FINRA also determined that Sterne, Agee failed to reasonably supervise the fair pricing of customer transactions in corporate fixed income securities. For example, Sterne, Agee failed to adequately train and supervise a trading desk employee to ensure that the employee complied with NASD rules with respect to determining the prevailing market price of corporate fixed income securities.
Significantly, FINRA found that Sterne, Agee’s supervisory system failed to provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules concerning best execution of fixed income corporate securities transactions. Thus, in addition to paying fines, FINRA required Sterne, Agee to revise its WSPs.
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