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Screenshot of a breaking news alert e-mail from Q2 2017
Both companies failed to mitigate increased risks associated with Inverse and leveraged ETFs
A press release has been issued by the Financial Industry Regulatory Authority (FINRA) regarding a decision to fine two Saint Louis based broker-dealers both owned by Stifel Financial Corporation. Stifel, Nicolaus & Co. and Incorporated and Century Securities Associates are to pay a combined amount of $550,000 in fines and $475,000 in restitution to 65 customers as the companies failed to appropriately inform clients about the complexities of the products offered to them.
The companies sold leveraged and inverse ETF’s to their customers without making due diligence and with evidence from FINRA that sales staff has not been appropriately trained to inform people on the other end of the line as to the increased risks associated with leveraged and inverse ETF products.
According to FINRA the companies made unsuitable recommendations to customers between 2009 and 2013 because their sales representatives did not fully understand leveraged and inverse ETFs features and risks such as the fact that their performance can diverge quickly from the performance of an underlying asset or benchmark.
Customers with a retail profile were misled to purchase such tools that lead to net losses in their portfolios. Тhe regulator states that the company did not have adequate supervisory mechanisms in place to be able to identify the misguided practices of sales staff. Inverse and leveraged instruments have been treated in the same way that regular ETFs were and neither company has created a set procedure to address the risks arising.
Stifel will pay $450,000 in fines and make restitution to 59 customers totaling $340,000, while Century will part with $100,000 in fines and reimburse 6 customers for a total of $136,000. As is common practice the companies neither admitted nor denied any wrongdoings.
For the full press release visit FINRA’s website.