Sending out emails containing material information could cost you $900,000

In North America, the way that material non-public information is handled by trading companies and research analysts within private equity and institutional sales and trading firms is a very serious matter. It is relatively common practice to serve information to interested potential clients and existing customers with regard to news relating to companies whose stock […]

email

In North America, the way that material non-public information is handled by trading companies and research analysts within private equity and institutional sales and trading firms is a very serious matter.

It is relatively common practice to serve information to interested potential clients and existing customers with regard to news relating to companies whose stock in which they may have an interest in investing, and ‘flash’ emails is one method often used to maximize reach.

One particular company, Stephens Inc, of Little Rock, Arkansas, has been issued a fine of $900,000 by the Financial Industry Regulatory Authority (FINRA) for what the authority considers to be an oversight which created the risk that these flash emails could potentially include materiall non-public information that may be misused by sales and trading personnel.

As an additional aspect, Stephens Inc will cease the distribution of flash emails, and was ordered by FINRA to implement a plan to conduct a comprehensive review of its policies, procedures and training in the research area.

This is particularly interesting as many retail FX companies have considered that operating a research and analytics team which analyzes the market and in some cases actually distribute data to clients.

With regard to currencies, there is very little risk indeed because the internal affairs or performance of companies which are the subject of investment and could influence prices is not relevent.

With stocks, equities and indices, however, which are continually being added to many FX trading companies’ range of products, this would be a different matter and this action by FINRA sets a precedent.

In this particular case, Stephens’ company-wide flash email program was designed as an expeditious way for research analysts to share publicly available news and insights regarding covered companies with its sales and trading personnel for discussion with firm customers interested in those companies.

FINRA conducted an inspection of Stephens Inc’s operations and found instances of the company’s personnel forwarding flash emails marked “internal use only” to customers, or cutting and pasting the text of an internal-use email into a separate communication sent to a customer.

In at least one instance, FINRA also found that content from an unapproved, draft research report was cut and pasted into a flash email. Although these practices were contrary to firm policy, FINRA found that the firm lacked effective monitoring or supervisory systems to detect or prevent them.

Making a public statement this week on the matter, Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said

“The supervision of internal communications by research analysts to the sales force requires extreme vigilance given the possibility of revealing material nonpublic information in advance of published research. Today’s action reminds those firms that permit such communications of the need to supervise and monitor them, and to ensure that their controls protect against trading based on the information.”

Should this now become a point of focus for the regulators, ‘call to action’ emails could well become a thing of the past.

Read this next

Retail FX

Banxso announces 8.7% interest rate on deposits in South Africa

“With Banxso, they can enjoy the benefits of both worlds – earning competitive interest and having the freedom to trade, all within the same platform.”

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

Digital Assets

US, UK probe $20 billion Tether transfers tied to Russian exchange.

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

<