SEC fines JP Morgan Chase’s OEMS Neovest for operating unregistered broker-dealer

Rick Steves

Neovest withdrew its broker-dealer registration after it was acquired by JP Morgan Chase, but continued to operate the OEMS as an unregistered broker-dealer.

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The Securities and Exchange Commission has settled with Neovest Inc. in its first case charging an OEMS provider for operating as an unregistered broker-dealer.

Neovest, a JPMorgan Chase-owned order and execution management system (OEMS) that facilitates electronic trading, has agreed to pay a $2.75 million penalty for its failure to register as a broker-dealer.

The OEMS allows customers to route orders for stocks and options to more than 360 customer-selected destination brokers for execution.

Prior to being acquired by JPMorgan Chase, Neovest engaged in this activity through its registered broker-dealer, Neovest Trading Inc.

Neovest withdrew its broker-dealer registration after it was acquired, but continued to operate the OEMS as an unregistered broker-dealer by, among other things, participating in the order-taking and order-routing process and soliciting customers and destination brokers through the firm’s website and direct outreach at industry conferences and trade shows.

Neovest played a role in determining the routing options that were available to its customers by entering into agreements with the destination brokers.

Neovest also continued to receive transaction-based compensation by having payments from destination brokers redirected to J.P. Morgan Securities LLC, a registered broker-dealer, which then transferred the proceeds to Neovest.

As a consequence of operating an unregistered broker-dealer, Neovest “deprived its customers of protections associated with registration, including inspections and examinations by the SEC and the requirement to establish policies and procedures to safeguard customer information”.

Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit, said: “According to the SEC’s order, Neovest circumvented the regulatory regime that grants broker-dealers the privilege of operating in our markets. Today’s charges underscore the SEC’s commitment to securing the important investor protections that flow from broker-dealer registration.”

Without admitting or denying the SEC’s findings, Neovest consented to the order and agreed to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act, and to pay a $2.75 million penalty.

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