Regal Securities has come to a resolution with the Financial Industry Regulatory Authority (FINRA) and has consented to pay a fine of $50,000.
From August 2017 to January 2019, Regal did not make a plan or write down rules to make sure they followed FINRA’s rules about monitoring trading.
In July 2017, a Regal branch manager wanted to do business with a customer that had an account with them before.
The compliance department said no, but the branch manager asked the trading desk and they opened a new account for the customer on August 10, 2017.
The company gave the branch manager and another registered representative, both of whom were registered with FINRA as General Securities Principals, the responsibility of overseeing this customer’s trades, including taking a look at surveillance alerts.
These two registered representatives promised the firm that they would keep track of the customer’s account activity. The customer started trading on August 22, 2017. Some of the customer’s trades set off surveillance alerts that could have been signs of marking the close activity on August 23, 24, 28, and 29, 2017.
On August 31, a Regal executive told the account representative that the account may need to be closed due to this trading activity. The firm did not properly review these alerts or take any action concerning the customer at that time.
Failure to Detect Potentially Manipulative Trading
Regal’s customer was allowed to keep trading until the end of January 2019. At which point Regal ended the customer’s ability to trade due to a failure to meet margin calls. During that time, their activities generated roughly 1,600 surveillance alerts that could have indicated potential marking the close activity.
Additionally, between November 2017 and June 2018, the customer-generated approximately 40 alerts that could have indicated wash trading. Regal sent these alerts to the representatives to review. However, there was no evidence of how reviews should be conducted or documented.
Neither representative reported any of their concerns to the compliance department. And the compliance department failed to follow up with the representatives after forwarding the alerts.
Furthermore, Regal had no surveillance in place to detect layering or similar activities until January 2019. As such, their supervisory system was not designed to detect potentially manipulative trading.
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