The NASD has fined four firms for high-yield corporate bond trading violations. SG Americas Securities, RBC Capital Markets Corp., DebtTraders and RBC Dain Rauscher were charged with supervision violations and charging unnecessary markups or markdowns in their bond trading activities.
In addition to the issues the NASD found with the markup/markdown practices of the firms, books and record violations were found with DebtTraders, SG Americas and RBC Dain. Compounding the problems at DebtTraders, NASD discovered it had failed to accurately report bond transaction data to NASD's TRACE system, the trade reporting and compliance engine that the NASD utilizes.
"TRACE data enhances NASD's surveillance of the over-the-counter bond market, giving regulators the ability to identify transactions where customer have been charged excessive markups and markdowns," explained Stephen Luparello, executive v.p. of market regulation at NASD.
All four firms had supervisory systems that were les than sufficient, according to the NASD. The systems were inadequate and could not comply with the guidelines set forth by the NASD in regards to its markup policy. The three remaining firms have been ordered to fix these deficiencies. They will have 60 days to complete the restructurings.
SG America is paying a fine of $3.75 million and restitutions totaling $728,000. RBC Capital is responsible for a $2 million fine and restitutions of $108,000 and its affiliate RBC Dain Rauscher was fined $1 million and ordered to pay $158,000 in restitutions. DebtTraders' violations were such that it was removed from the industry and slapped with $120,000 in restitution payments. As of July 31, DebtTraders was no longer actively trading and is currently in the process of liquidating its business. Officials at RBC Capital Markets, RBC Dain Rauscher and SG Americas Securities did not comment by press time. Calls to DebtTraders went unanswered.