FINRA has imposed a $250,000 fine on StockCross Financial Services from violations that occurred between July 2009 and December 2019.
July 19, 2021, | AtoZ Markets – The Financial Industry Regulatory Authority (FINRA) has fined California brokerage firm StockCross Financial Services, Inc. $250,000. The fine is a part of a settlement offer proposed by the firm and accepted by FINRA.
The sanctions stem from violations that occurred between July 2009 and December 2019.
FINRA takes action against Stockcross Financial Services
During the relevant period, StockCross had no reasonable surveillance system to review solicited transactions for excessive trading and suitability. StockCross delegated trade surveillance to certain principals but took no steps to determine whether these designated principals were in fact reviewing solicited transactions for suitability and excessive trading, which they were not.
Moreover, until 2017, the firm did not provide them with exception reports to assist in identifying potentially excessive trading or churning and in reviewing customer account losses. When instituted, StockCross’s exception reports were not reasonably designed to identify excessive trading. StockCross’ supervision of solicited transactions was not reasonably designed and therefore violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
Because of its inadequate supervisory system, StockCross failed to reasonably supervise Representative 1, a firm broker FINRA subsequently barred for failing to cooperate in a FINRA investigation into his excessive trading of the accounts of two senior customers. As a result, StockCross violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
Furthermore, between July 2009 and June 2017, StockCross permitted an employee to function as a principal and to supervise options transactions without obtaining the necessary securities registrations in violation of NASD Rule 1021(a) and FINRA Rule 2010.
Separately, from June 2017 to July 2019, StockCross failed to comply with the possession-or-control requirements of Exchange Act Rule 15c3-3. During that time, the firm’s stock loan business expanded rapidly but the firm failed to adapt to its growing business line, thus resulting in the firm failing to timely cure possession-or-control deficits caused by its securities lending business, including impermissibly using fully-owned customer securities to satisfy an outstanding borrow position of 27,714 shares.
The firm also experienced four customer reserve hindsight deficiencies totaling over $1 million because it misclassified certain customer accounts as non-customer accounts. StockCross additionally did not ensure it included in its customer reserve computations any customer funds in transit from branch offices. As a result, StockCross violated Exchange Act Rule 15c3-3 and FINRA Rule 2010.
Finally, between September 2017 and February 2019, StockCross failed to store over 30,000 emails of sixteen associated persons in an easily accessible place. Consequently, StockCross violated Section 17a of the Exchange Act, Exchange Act Rule 17a-4(b)(4), and FINRA Rules 4511, and 2010.
On top of the fine, the firm has agreed to a censure.
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