BD To Pay $1 Million for Excessive Mark-Ups on U.S. Treasury Securities
FINRA ordered a BD to pay $1 Million in restitution and a fine for charging excessive and undisclosed markups on government bonds. According to FINRA, the BD charged markups ranging from 3.5% to 6.2% on U.S. Treasury STRIPS. FINRA argued that the markups were “excessive and fraudulent because the amount charged was greater than the amount warranted by market conditions, the cost of executing the transactions and the value of the services rendered to the customers.” FINRA listed the several factors a BD must consider when charging commissions including expenses, profit, services, market liquidity, and expertise.
OUR TAKE: What prompted FINRA to bring this action? Was it the lack of disclosure? The relatively high mark-up? The fact that it was government bonds? Our guess is that this last factor was the most significant because FINRA seemed to stress that this case involved U.S. Treasuries, which, according to FINRA, are “the most liquid securities available in the market.” This case also serves as a good roadmap for investment managers assessing best execution.