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October 02, 2023 at 11:55 AM
Fidelity Brokerage Services has been hit with fines from the Financial Industry Regulatory Authority and the Massachusetts Securities Division for “rubber-stamping” options trading applications.
The Massachusetts Securities Division fined Fidelity $750,000, while FINRA hit the firm with a $900,000 fine.
The consent order in Massachusetts, filed by Secretary of State William Galvin, alleged that Fidelity’s application review system “allowed customers to submit multiple applications, each time with the information altered until the customers met the requirements to be approved,” his office said.
On Jan. 26, 2022, Galvin’s division filed a complaint against Fidelity alleging that the firm “failed to properly vet customers who applied to be approved for options and margin trading,” his office said.
FINRA’s order states that from May 2017 through April 2022, Fidelity did not exercise reasonable due diligence before approving customers to trade options.
During this period, Fidelity “used an automated, electronic system to screen customers’ online applications to trade options, after which a principal at the firm reviewed and then approved or disapproved customer accounts for options trading,” FINRA states.
Flaws in Fidelity’s system for reviewing options trading applications “resulted in customers being approved for options trading who did not satisfy the firm’s eligibility criteria or who submitted successive applications with materially different information concerning their finances and/or investment experience that raised red flags that thelevel of options trading the customer sought was inappropriate for them,” FINRA said.
Fidelity has taken steps since then to improve its application review systems and online applications, according to Galvin’s office.
