Credit Suisse Securities USA settles $345,000 with FINRA

Rick Steves

FINRA found that as of September 2017, Credit Suisse USA had a backlog of about 8,000 accounts with approximately 52,000 trades that could not be matched to a specific employee.

Credit Suisse

The United States Financial Industry Regulatory Authority (FINRA) has accepted a $345,000 settlement offer from Credit Suisse Securities USA to resolve charges over monitoring deficiencies.

FINRA alleged that the broker-dealer failed to establish and maintain a functional supervisory system to oversee its employees’ outside brokerage accounts, from at least July 2016 to April 2019.

Although employees were required to obtain permission prior to execute trades on their personal brokerage accounts, Credit Suisse failed to ensure its staff was compliant, the regulator alleged, because of a lack of a supervisory system such as an automated system for tracking whether new hires made the required disclosures.

FINRA claims it found that as of September 2017, Credit Suisse USA had a backlog of about 8,000 accounts with approximately 52,000 trades that could not be matched to a specific employee.

The firm only set up a proper system in 2019 and discovered 2,700 previously undisclosed accounts, with an additional 400 undisclosed accounts being found during the reconciliation of exceptions, according to the financial watchdog.

Credit Suisse Securities paid FINRA a $6.5 million fine in 2019

In 2019, FINRA imposed a $6.5 million fine on Credit Suisse Securities (USA) LLC for supervisory violations and violations of various provisions of Rule 15c3-5 of the Securities Exchange Act of 1934 (known as the Market Access Rule).

Over the course of four years, 2010 to 2014, Credit Suisse offered its clients direct market access to numerous exchanges. The firm executed over 300 billion shares on behalf of its direct market access clients. During part of that time, certain of the firm’s direct market access clients engaged in trading activity that generated over 50,000 alerts at FINRA and the Exchanges for potential manipulative trading, including spoofing, layering, wash sales and pre-arranged trading. Three of the firm’s direct market access clients accounted for the majority of the 50,000 alerts for potentially manipulative activity. The same three clients at their peak generated approximately 20% of the firm’s overall order flow.

FINRA and the Exchanges found that during most of the relevant time period, Credit Suisse did not establish a supervisory system reasonably designed to monitor for potential spoofing, layering, wash sales and pre-arranged trading by its direct market access clients. Due to this, orders for billions of shares entered the US markets without being subjected to post-trade supervisory reviews for such potential manipulative activity. On top of that, Credit Suisse was informed of gaps in its surveillance system by correspondence with one of its direct market access clients and by an internal audit report.

Furthermore, Credit Suisse violated numerous provisions of the Market Access Rule, which requires broker-dealers that provide their customers access to an exchange or an alternative trading system to reasonably manage the financial and regulatory risks of providing such access. From 2011 to 2017, Credit Suisse violated the Market Access Rule’s provisions related to the prevention of erroneous orders, the setting of credit limits and the firm’s annual review of the effectiveness of its market access controls and supervisory procedures.

In settling this matter, Credit Suisse neither admitted nor denied the charges, but consented to the entry of FINRA’s and the Exchanges’ findings. On top of the fine, Credit Suisse agrees to a censure.

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