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Industry Spotlight > Broker Dealers

SEC Slaps BD for Text Message Snafus

By Melanie Waddell

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A case levied against a broker-dealer for text messaging clients highlights the importance of recent guidance issued by the Securities and Exchange Commission.

Related: The SEC Is Watching Advisors’ COVID-19 Response

The securities regulator recently settled charges against JonesTrading Institutional Services LLC, a registered broker-dealer based in California, for failing to preserve business-related text messages sent or received by several of its registered reps on their personal devices when communicating with each other, with firm customers and with third parties.

The text messages concerned, among other things, the size of orders, the timing of trades and the pricing of certain securities, according to the order.

“Some of the messages were responsive to a request for records made to the firm by SEC staff in an unrelated investigation, but, because the responsive text messages were not retained on JonesTrading’s firm-sponsored systems, JonesTrading failed to produce the relevant text messages to the staff,” the complaint states.

Iain Duke-Richardet, compliance strategy principal at Hearsay Systems, told ThinkAdvisor in an email that the action against JonesTrading “shows that the Commission is acting consistently with its guidance regarding the appropriate use of electronic communications,” which was released in mid-August.

Broker-dealers, wealth managers and investment advisors “should be carefully looking at their policies regarding permitted communication channels and in particular at the testing being conducted to validate adherence to company standards,” Duke-Richardet said.

Hearsay recently reported that the uptick in the use of social media and text messaging was significant, with Hearsay observing a 300% spike in digital communications since the onset of the coronavirus pandemic.

The SEC order further found that JonesTrading’s senior management were among those sending and receiving business-related text messages that were not retained by the firm.

JonesTrading was charged with violating the recordkeeping provisions of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 thereunder.

JonesTrading, without admitting or denying the findings, agreed to cease and desist from committing or causing any violations of those provisions, to be censured and to pay a civil penalty of $100,000.

— Related on ThinkAdvisor:

Melanie Waddell

@Think_MelanieW

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