More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Financial Industry Regulatory Authority and BATS Exchange Inc. announced Tuesday that they have jointly ordered Citigroup Global Markets Inc. to pay approximately $1.1 million in connection with short selling ahead of participating in five public offerings of securities, in violation of Rule 105 of Regulation M.
The payments include the disgorgement of more than $538,000, plus interest, of profits and improper financial benefits, and approximately $559,000 in fines.
Citigroup also violated supervisory requirements related to Rule 105, and as part of the sanction, the firm was ordered to update its written supervisory procedures for Rule 105 compliance.
In concluding the settlement, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA and BATS’ findings.
“Rule 105 of Regulation M remains vital to protecting the integrity of the offering process by prohibiting firms from engaging in certain prohibited activities before the pricing of secondary offerings,” said Thomas Gira, FINRA executive vice president of Market Regulation, in a statement. “FINRA will continue to aggressively monitor firms for adherence to Rule 105’s requirements and adequate supervisory systems to ensure such compliance.”
As FINRA explains, Rule 105 of Regulation M under the Securities Exchange Act of 1934 generally prohibits buying securities in secondary offerings when the purchaser sold short the security that is the subject of the offering during a specific restricted period – typically five business days – before the secondary offering is priced.
From May 26, 2009, to Sept. 21, 2010, Citigroup sold securities short within the five business days leading up to the pricing of five public offerings in those securities, and then purchased securities in those offerings. Citigroup purchased a total of more than 1.5 million shares after having sold short 313,890 shares of the securities within the five business days leading up to the offerings, FINRA said.
BATS Global Markets, Inc. is a global operator of securities markets. In the U.S., BATS operates four stock exchanges – BZX, BYX, EDGX and EDGA.
Check out Firms Agree to Stop Early Access to Analyst Opinions on ThinkAdvisor.