The Financial Industry Regulatory Authority said Thursday that it 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,” the group said in a press release.
Last week, it fined Credit Suisse Securities (USA) LLC $4.5 million and Merrill Lynch $3 million for “misrepresenting delinquency data and inadequate supervision in connection with the issuance of residential subprime mortgage securitizations (RMBS).”
FINRA says that from October 2006 through October 2009, Northern Trust did not 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,” according to the release.
FINRA also found that from January 2007 to June 2008, 43.5% 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,” the regulatory group stated.
"Northern Trust's deficient systems and procedures allowed more than 40% 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," said Brad Bennett, FINRA executive vice president and chief of enforcement, in a statement.
In concluding this settlement, Northern Trust said that it neither admitted nor denied the charges but consented to the entry of FINRA's findings and agreed to pay a fine of $600,000.
“NTSI neither admits nor denies the findings of FINRA,” the Chicago-based company said in a statement. NTSI has addressed the systems and supervisory issues that were the subject of the settlement with FINRA. The settlement relates to activity from October 2006 through October 2009.NTSI is pleased to resolve this matter.
In the first quarter, Northern Trust’s corporate and institutional services group had some $4.4 trillion in assets under custody and $662 billion in assets under management.
Merrill, Credit Suisse
On May 26, FINRA fined Credit Suisse $4.5 million and Merrill Lynch $3 million over the misrepresentation of delinquency data and inadequate supervision in connection with the issuance of residential subprime mortgage securitizations (RMBS).