REGULATORS TO EXAMINE HOW FIRMS PREVENT FALSE INFORMATION
The SEC, FINRA, and NYSE Regulation have announced that they will conduct examinations of broker-dealers and investment advisors about their efforts to prevent spreading of false information and rumors. The SEC noted that the obligation of BDs and RIAs to have supervisory and compliance controls to prevent violations of securities laws requires firms to have controls designed to prevent the spreading of false information to manipulate markets. Spreading false information could violate Rule 10b-5, NYSE Rule 435(5), and NASD Rule 2110. In the information request sent to firms, NYSE Regulation is asking firms to describe how it monitors personnel to prevent the spreading of false information, how it reviews electronic communications including instant messages and internet chat rooms, whether it prohibits use of personal accounts, how the firm handles inquiries about a rumor, whether it trains personnel, and whether it has conducted any reviews or internal investigations.
OUR TAKE: Firms should commence a review of their policies and procedures with respect to the spreading of false information. The review should include testing of the procedures. Firms should also ensure proper training of personnel. Firms should also consider banning personal electronic communications and accounts for any firm-related business.