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The Financial Industry Regulatory Authority (“FINRA”) recently announced that it has fined Northern Trust Securities $600,000 for deficiencies in supervising sales of collateralized mortgage obligations (CMOs) and failure to have adequate systems in place to monitor certain high-volume securities trades.
FINRA found that from October 2006 through October 2009, Northern Trust failed to monitor customer accounts for potentially unsuitable levels of concentration in CMOs, in large part because it used an exception reporting system that failed to capture or analyze substantial portions of the firm’s business, including all CMO transactions, certain trades of 10,000 equity shares or more, and certain trades of 250 or more of fixed-income bonds. FINRA found that from January 2007 to June 2008, 43.5 percent of the firm’s business was excluded from review.
The absence of systems to monitor equity trades of over 10,000 shares or fixed income trades of over 250 bonds also resulted in a failure to review these trades for suitability, concentration, excessive trading, excessive mark-ups or commissions, or for trading in restricted stocks.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Northern Trust’s deficient systems and procedures allowed more than 40 percent of its transactions to proceed without review, which in turn left vulnerable investors exposed to the risk of losing all or a substantial portion of their principal through potential over-concentration in CMOs.”
In concluding this settlement, Northern Trust neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
The enforcement action was brought by Laura Leigh Blackston, Senior Regional Counsel, under the supervision of Andrew Favret, Associate Vice President and Regional Chief Counsel of the Department of Enforcement.