More On Legal & Compliancefrom The Advisor's Professional Library
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
BrokersXpress, the specialty broker-dealer owned by Schwab under OptionsXpress Holdings, reportedly told advisors and clients Wednesday that it will shut its doors. Schwab purchased the options-based businesses in March 2011 for a reported $1 billion.
“We acquired OptionsXpress to gain access to a retail derivatives product offering,” Schwab spokesman Susan Forman told AdvisorOne. “As part of that deal, we also gained BrokersXpress. What we’ve found is that it was difficult to integrate because BrokersXpress does not meet our core business needs.”
As such, Forman said it is winding down BrokersXpress with the requisite 90-day notification process for affiliated advisors and clients. CEO Barry Metzger will remain with OptionsXpress, as will most of the staff of BrokersXpress, she added.
OptionsXpress has been the subject of two separate investigations by the Securities and Exchange Commission recently, in which charges were filed. Forman emphatically stated that the decision to close BrokersXpress has nothing to do with either case.
In the first case, the SEC charged the firm, as well as four officials at the firm and a customer, in an alleged abusive naked short-selling scheme.
The SEC’s Division of Enforcement claims the Chicago-based firm “failed to satisfy its close-out obligations under Regulation SHO by repeatedly engaging in a series of sham ‘reset’ transactions designed to give the illusion that the firm had purchased securities of like kind and quantity.”
The firm and a customer, Jonathan Feldman, engaged in these “sham reset transactions in a number of securities, resulting in continuous failures to deliver,” according to the SEC’s complaint.
In the second case, the SEC accused the firm’s trading arm, OX Trading LLC, with continuing its trading operations after delisting from the Chicago Board Options Exchange (CBOE) and deregistering with the SEC, apparently to avoid an audit.
The SEC’s Division of Enforcement alleges OX Trading, under the direction of former OptionsXpress CFO Thomas Stern, operated as an unregistered dealer from October 2009 to November 2010 and illegally transacted in securities while not a member of a national securities association or national exchange.
Schwab's outside counsel, Stephen Senderowitz of the law frim Winston & Strawn LLP, said of the second matter that OX Trading "was closed in anticipation of the implementation of the Volcker rule."
In a statement to AdvisorOne, he also pointed out that OptionsXpress fired Stern after an investigation. "The allegations against Mr. Stern relating to his post-registration conduct that are contained in the order were self-reported by the company," Senderowitz said in the statement.