The Blog Of The Securities Industry Professional Association

Merrill Lynch The Small Firm Advocate

FINRA recently sent out notice to all member firms with yet another head scratching list of candidates for the Small Firm Advisory Board (SFAB). Chief Legal counsel at one firm and lots of Chief Compliance officers vying for one position on the board. Just when I thought it could not get any stranger my eyes nearly popped out onto my desktop when I read this entry for consideration:

Douglas Preston- SVP Compliance at Merrill Lynch Clearing Corp

Say what? Merrill Lynch is a small firm? Last I checked they were one of the largest firms on the street with more reps then most cities. Now I know that they have many divisions and brokerage arms at these mega firms but give me a break. What perspective can this man possibly bring to the SFAB that will help get the word out that small firms are suffering? I would like to preface this by saying I have never met nor spoken with Mr. Preston. He seems like a fine and honorable man and I am in no way criticizing him as a person. I am however trying to understand a system that allows someone who draws a check from the Merrill Lynch family of companies to sit on a board designed to help small firms around the country. Most members of the SFAB come with first hand knowledge of the cost and burden of Compliance on their firms. For instance the SFAB often discusses Net capital and possible increases to the current level. I’m not sure Merrill Lynch Clearing is really all that concerned with capital nor are they concerned with the cost of AML or any of the other rules that are crippling the small firm’s ability to compete. I don’t know for sure but I would be shocked if the SVP of Merrill Lynch Clearing wasn’t making more per year in salary and bonus then the entire other board members combined. The SFAB was formed to be a sound board to the actual Board and although I have been critical of its true impact over the years, I do believe that if you are going to bother having this board at all you should make sure that it truly comprises a mixture of small firms around the country. Merrill Lynch Clearing has institutional trading accounts for some of the largest and wealthiest hedge funds and banks in the world..oh and they have one really large clearing correspondent called Merrill Lynch that has about ten thousand brokers. If for any reason there was a problem and they needed additional capital they can simply go to their other divisions and get some cash or in a real pinch, they can call Uncle Sam and ask for a bailout and some TARP money. Call me crazy but I think if you work for a firm that either directly or indirectly received TARP funds then you probably don’t belong on the Small Firm Board. Clearly this is not what was intended when the SFAB was formed and in is not in the spirit of the board. We have been contacted by other potential board nominees and will be posting their history as well for you to decide who best represents your views.

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November 9th, 2010


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