FINRAs First Five Years: 6,291 Disciplinary Actions

The Financial Industry Regulatory Authority said Monday that it had brought 6,291 disciplinary actions and levied a total of $254.1 million in fines, since its formation on July 30, 2007.

That was the date FINRA was formed by the consolidation of the National Association of Securities Dealers and the member regulation, enforcement and arbitration operations of the New York Stock Exchange.

In marking its fifth anniversary, FINRA said it also has ordered nearly $54.5 million in restitution to harmed investors and expelled 99 firms from the securities industry.

The expulsions include 1,647 individuals. Another 1,992 have been suspended from association with FINRA-regulated firms.

Topping the hit parade, by FINRA’s count:

• UBS, fined $12 million for violations involving short sales. (October 2011)

• Goldman Sachs, fined $22 million for violations related to trading huddles at the firm. (April 2012)

• Auction-rate securities,. A total of 20 firms fined $15.4 million involving sales of auction-rate securities, and firms agreed to buy back more than $2 billion of frozen ARS from their customers.

• Subprime and mortgage-backed securities actions. Twenty-three actions with fines totaling $28.7 million and $8.8 million in restitution.

• Trillium Brokerage Services, fined $1 million for using an illicit high-frequency trading strategy and related supervisory failures. (Sept 2010)

“Millions of investors benefit extensively from the critical regulatory programs FINRA provides, and the organization is well positioned to address market and regulatory issues moving forward,‘’ said Rick Ketchum, FINRA Chairman and CEO.

Ketchum said that FINRA “formed a single streamlined exam program that is more efficient and effective than it was five years ago” and responded to the Bernard L. Madoff and Allen Stanford frauds by reviewing its regulatory procedures.

Madoff is a former vice chairman of the National Association of Securities Dealers.

FINRA’s changes included:

• Creating, in March 2009, the Office of the Whistleblower to expedite the review of high-risk tips by FINRA senior staff and ensure a rapid response for tips believed to have merit.

• Establishing the Office of Fraud Detection and Market Intelligence (OFDMI), which was launched in 2009 to focus resources on the detection and investigation of suspected fraud, insider trading, microcap fraud and Ponzi schemes, and work to coordinate regulatory intelligence across the FINRA enterprise. OFDMI reviews incoming allegations of serious fraud, and serves as a centralized point of contact internally and externally on fraud issues.

That unit has referred more than 1,750 matters involving potential fraudulent conduct to the SEC or other federal or state law enforcement agencies; and made more than 775 referrals involving boiler rooms and microcap fraud, FINRA said.

In June 2010, FINRA reached agreement to assume responsibility for performing the market surveillance and enforcement for NYSE Euronext’s U.S. equities and options markets – the New York Stock Exchange, NYSE Arca and NYSE Amex.

That meant FINRA could view aggregated trade data across 80 percent of the U.S. securities markets.

FINRA already provided regulatory services to the NASDAQ Stock Market, NASDAQ Options Market, NASDAQ OMX Philadelphia, NASDAQ OMX Boston, The BATS Exchange and The International Securities Exchange.

FINRA also expanded the Order Audit Trail System (OATS) to include all National Market System (NMS) securities to create a uniform order audit trail to serve as a foundation for the cross-market surveillance program.

FINRA has offered to use the OAT system as the basis for a consolidated audit trail of securities markets. The Securities and Exchange Commission in the past month charged FINRA and the national exchanges with coming up with a reliable system for overnight reporting of all financial transactions, into a data repository that it will monitor for possible market disruptions or abuses.

FINRA also expanded it BrokerCheck, online tool for investors to include records of all final regulatory actions against brokers.

FINRA’s chief executive at the time of its formation was Mary L. Schapiro, now chairman of the SEC.

"The creation of FINRA is the most significant modernization of the self-regulatory regime in decades," Schapiro said, at the time. "With investor protection and market integrity as our overarching objectives, FINRA will be an investor-focused and more streamlined regulator that is better suited to the complexity and competitiveness of today's global capital markets. By eliminating overlapping regulation and establishing a uniform set of rules placing oversight responsibility in a single organization, we will enhance investor protection while increasing the competitiveness of our financial markets.