Wedbush Securities Inc has agreed to pay a fine of $150,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Between June 2018 and December 2022, Wedbush failed to maintain possession or control of customers’ excess margin securities. The firm did not combine credits and debits from separate accounts owned by the same customer ( and opened under the same tax identification number) prior to calculating the securities having a market value in excess of 140% of the customer’s debit balance.
Therefore, the firm overcalculated the number of shares that were available for rehypothecation (collateral to be used for the firm’s own purposes). This resulted in deficits in customers’ securities the firm was required to segregate.
The amount of the firm’s segregation deficit varied during the relevant period, and at times exceeded 100,000 shares and $2 million in value.
As a result, the firm violated Exchange Act§ 15(c)(3), Exchange Act Rule 15c3-3(b)(l), and FINRA Rule 2010.
Also, between June 2018 and December 2022, Wedbush failed to establish and maintain a reasonable system, including written supervisory procedures (WSPs), to achieve compliance with Exchange Act Rule 15c3-3’s possession or control requirements.
The firm did not have reasonable systems in place to identify separate accounts owned by customers with the same tax identification number and to combine the credits and debits of the securities in those accounts prior to determining the amount of securities that it needed to segregate.
Likewise, the firm did not provide guidance to firm employees on how to segregate securities where customers held multiple accounts with the same tax identification number to ensure that the firm did not improperly use customer securities.
As a result, Wedbush violated FINRA Rules 3110 and 2010.
Between August 2022 and August 2023, Wedbush issued approximately 300 confirmations for municipal securities transactions to retail customers that did not include mark-ups and mark-downs expressed as a total dollar amount and as a percentage of the PMP. Also during this period, Wedbush issued approximately 1,050 confirmations for corporate and agency debt transactions to retail customers that did not include mark-ups and mark-downs expressed as a total dollar amount and as a percentage of the PMP.
These failures resulted from Wedbush personnel failing to timely enter PMP into the firm’s order management system.
Therefore, Wedbush violated MSRB Rule G-15 and FINRA Rules 2232 and 2010.
Finally, between August 2022 and August 2023, Wedbush failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with MSRB Rule G-15 and FINRA Rule 2232.
Wedbush’s WSPs contained no procedures regarding when firm personnel were required to enter the PMP for applicable transactions into Wedbush’s order management system, and the firm did not provide any training or guidance to supervisors regarding when the PMP should be entered into that system.
By failing to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable disclosure obligations ofMSRB Rule G-15 and FINRA Rule 2232, Wedbush violated MSRB Rule G-27 and FINRA Rules 3110 and 2010.
On top of the $150,000 fine, the firm has agreed to a censure.
