RBC Capital Markets Corporation nka RBC Capital Markets, LLC (CRD #31194, New York, New York) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $200,000, and ordered to pay $70,000 in partial restitution to a customer.
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that a firm registered representative engaged in unsuitable, excessive trading in elderly customers’ accounts by purchasing closed-end funds (CEFs) for them at the initial public offering (IPO), but then selling the CEFs within the next several months. The representative also exercised discretion in several accounts, without the customers’ written authorization or the firm’s written acceptance of the accounts as discretionary.
The elderly customers lost a total of approximately $390,000 in their accounts. The findings stated that the firm underwrote IPOs involving CEFs but did not have a system and written procedures reasonably designed to detect and prevent patterns of unsuitable short-term trading of CEFs, including those purchased at the IPO. The firm’s supervisory procesures failed to address the suitability of recommendations involving CEFs and did not provide any guidance to supervisors about potential abuses relating to short-term trading sales of CEFs purchased at the IPO, so the firm’s supervisors lacked adequate guidance concerning potential problems involving CEF transactions.
The findings also included that the firm did not utilize any exception reports or other processes to detect short-term trading of CEFs. The sole means available to firm supervisors to identify such trading was through the daily review of trade blotters. Given the hundreds of potential transactions supervisors were required to review daily, this was an ineffective system. FINRA found that the trade blotters did not identify when the CEFs had been purchased or if they had been acquired at the IPO. Accordingly, firm supervisors did not have an effective way to determine how long a customer held a CEF before the sale.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
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