Jefferies LLC has agreed to pay a $37,200 fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From at least January 2018 through September 2022, Jefferies’s supervisory system, including written supervisory procedures, was not reasonably designed to achieve compliance with Regulation M in violation of FINRA Rules 3110 and 2010.
Rule 101(a) of Regulation M under the Securities Exchange Act of 1934, in relevant part, makes it unlawful for underwriters, broker-dealers, and other distribution participants to directly or indirectly “bid for, purchase, or attempt to induce any person to bid for or purchase, a covered security during the applicable restricted period.”
As defined in Rule 100(b) of Regulation M, a distribution participant’s restricted period for a covered security generally begins one or five business days prior to the determination of the offering price and ends upon the distribution participant’s completion of participation in the distribution.
Thus, attempts by distribution participants to bid for, purchase, or induce others to bid for or purchase a covered security during the applicable restricted period are generally prohibited, absent the ability to rely upon an available exception. Such bids, purchases, or inducements can undermine the integrity of the market by artificially stimulating demand and supporting the pricing of the offering.
From at least January 2018 through September 2022, Jefferies supervisory system and written supervisory procedures (WSPs) were not reasonably designed to achieve compliance with Regulation M and related notification rules.
The firm’s WSPs described the various requirements of Regulation M and related notification rules. However, the WSPs did not reasonably describe steps to achieve compliance with Regulation M and related notification rules, such as conducting supervisory reviews to verify whether an offering qualified as a distribution, that applicable restricted periods were accurate, the accuracy of Restricted Period Notifications, or to ensure that the firm did not engage in impermissible trading or bidding activity during restricted periods.
During the relevant period, Jefferies did not conduct supervisory reviews of its determinations whether an offering qualified as a distribution, whether its determinations of applicable restricted periods were accurate, or to ensure that the firm did not engage in impermissible trading or bidding activity during the restricted period.
As a result, Jefferies did not identify whether it purchased shares in covered securities during their restricted periods.
Therefore, Jefferies violated FINRA Rules 3110(a) and (b) and 2010.
On top of the fine, the firm has agreed to a censure.
The matter was resolved simultaneously with similar matters for a total fine of $250,000
Those matters were brought by Investors Exchange LLC, The Nasdaq Stock Market LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC, New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., and NYSE National, Inc.
