The Blog Of The Securities Industry Professional Association


Small firm Board members hit and miss

The recent announcement released by the three newly elected members to the FINRA Board leaves one hopeful yet once again puzzled. Lets start with the hopeful part first and agree that tackling OATS regulation is a step in the right direction. For too long OATS reporting on trades has been a monthly nightmare for small firms. One bad file or one corrupt order and you can almost be assured of a $5,000 fine against the firm. We also believe that sponsoring lawyers in how to sue a broker is not in your best interest and we applaud the aggressive attempt to shuttle that program. The rest of the message from Ken, Jed and Joel was nothing short of bewildering. In their letter, they state the following about the proposed rule 5122

Rule 5122

Currently FINRA Rule 5122, Reg D offerings, is on the table to be expanded. This is a very important issue. We strongly urge all members to comment on the proposal.  It may also be helpful to review other member comments prior to making your own comment. The Notice can be accessed through the following link:

You may make comments as follows:

By email:

No offense to our Governors but telling us about something that was already released in previous Notice to Members is like announcing today that you think Hosni Mubarak’s Presidency in Egypt could be in trouble. In fact last month the SIPA and leaders of several trade groups had a meeting about this subject and a unified letter is being drafted as we speak. What members want to know is what the three governors think and if they are fighting at the board level to make sure this job killing regulation is not passed. This rule only effects investment banking deals that are under 15 million dollars so once again the large firms are not affected and the small firms are left scrambling with more regulation in an even tougher business environment. We do strongly agree that members need to speak out and comment but 100 members commenting has less effect then 3 board members who are adamant about stopping this rule.

The next part of the communication becomes even murkier as they seem to delve only ankle deep into the RIA issue. They state the following:

Advisor Oversight

We have all seen the articles where firms are urging RIAs to rally against FINRA being the regulatory body for Investment Advisors. How many questionable representatives have we seen leave/ asked to leave/ barred from our industry only to show back up as an RIA? Currently RIAs have fewer rules and regulations than we do. They compete with us on an uneven playing field and do so without worry of repercussion from any regulator. Yes they are currently regulated by the States and the SEC but in reality if they are audited once every five (5) years they are unlucky, usually it’s less frequent than that.  Yet this group is the first to state how they are “better” than Regulated Firms because they act as a Fiduciary.   As professionals we need to have our voice heard by Congress, let them know how some of these people skirt the rules and regulations and how by allowing this class of investment professional to continue on without a strong Regulator they are leaving the door open to more Madoff type scams. Your support of FINRA to be the Regulator of choice will do two things for you: 1) Increase the membership of FINRA (more registered persons keeps our fees lower as well as lowers the impact of fines and fees necessary annually). 2) Places you on an equal playing field when working for new clients.

With all due respect this may be the most troubling thing I have read in a long time. First, if a ‘barred rep” is allowed to go form a Registered Investment Advisor whose fault is that? The SEC regulates this area as well as FINRA itself. If they allow a ‘barred individual” or even a highly disciplined individual to form an RIA then it’s the SEC’s responsibility. The idea of competing on an uneven playing field is comical because many advisers left the Brokerage industry to get away from suffocating rules that focus on technical rule violations and not on doing what is best for a customer. The Investment Advisor wants a large firm to hold the accounts, enter a couple trades and not worry about whether he filed a SARS, Reported the trades to ACT and OATS properly, located stock and signed off on a laundry list of other things. Quite frankly the idea of a Broker or Brokerage firm calling Congress to tattle tale on Investment advisers is nauseating. Given the fact that our highly regulated brokerage industry caused the collapse of the free markets and our economy, I don’t think we are in a position to ask that others fall under our regulation. I’m not sure we should be worrying about more Madoff scams when in fact FINRA dropped the ball on both Madoff and Sanford as well as a dozen others. In fact, if OATS was so effective, wouldn’t someone from FINRA notice that thousands of supposed trades were missing from the OATS report? Lastly, the three small firm Governors were elected to represent small broker dealers, not to worry about what is happening to Investment Advisors. As I sat in a room with approximately 14 owners of small Broker dealers last month they were concerned about the impact of Rule 5122 and whether this will be the final nail in the coffin of small investment banking. I didn’t hear anyone complain that their business would improve if FINRA regulates, FINES and CHARGES more fees to Registered Investment Advisors.

We hope the small firm Governors understand that they need to represent the small firm views and needs and not worry about the agenda others.

What do you think? Let us know.

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February 18th, 2011


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