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http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_013053&ssSourceNodeId=5
NASD Fines Scottrade,
Inc. $250,000 for Improperly Extending Credit to Cash Account
Customers
Washington, D.C.—NASD announced today that it has
fined Scottrade, Inc., of St. Louis, MO, $250,000 for improperly
extending credit to customers in violation of federal securities laws
and banking regulations.
NASD determined that Scottrade permitted cash account customers to
purchase and sell securities in a series of trades without requiring
full cash payment for each purchase, in violation of Federal Reserve
Regulation T. Regulation T requires that customers trading in cash
accounts make full cash payment for each separate purchase without
regard to unsettled proceeds of any securities sold.
"The sanctions in this case reflect NASD’s continuing concerns
about securities firms improperly extending credit to cash-account
customers,” said NASD Vice Chairman Mary L. Schapiro. "In addition to
complying with federal securities laws and NASD rules, firms must
adhere to banking requirements, including Regulation T."
NASD found that from January 1, 2001 to September 28, 2001,
Scottrade allowed its cash account customers to purchase and sell
securities with the proceeds due from unsettled trades. The firm
permitted this trading to occur in over 27,500 transactions in more
than 1,400 cash accounts. Regulation T, however, requires full cash
payment for the purchase of any security in a cash account without
relying upon the anticipated proceeds of any unsettled trade in the
account. The Federal Reserve Board staff issued guidance on this
issue in January 2000, one year before Scottrade’s misconduct
commenced. Scottrade, nevertheless, permitted its customers to
execute numerous purchase and sell transactions, on the same day, with
unsettled funds well into September 2001.
In settling this matter, Scottrade neither admitted nor denied the
charges, but consented to the entry of NASD’s findings.
This case is the latest enforcement action brought by NASD in the
area of cash account practices by firms that violate Regulation T. In
March 2004, NASD brought a separate action against Ameritrade, Datek
and iClearing for similar cash account practices that violated
Regulation T. In that matter, NASD found that the firms permitted the
trading in over 2 million transactions in over 30,000 customer cash
accounts. NASD fined the firms $10 million for the violations.
Investors can obtain more information about, and the disciplinary
record of, any NASD-registered broker or brokerage firm by using
NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to
the public. In 2003, members of the public used this service to
conduct more than 2.8 million searches for existing brokers or firms
and requested almost 180,000 reports in cases where disclosable
information existed on a broker or firm. Investors can link directly
to BrokerCheck at
www.nasdbrokercheck.com. Investors can also access this service
by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory
services, dedicated to investor protection and market integrity
through effective and efficient regulation and complementary
compliance and technology-based services. NASD touches virtually
every aspect of the securities business - from registering and
educating all industry participants, to examining securities firms,
enforcing both NASD rules and the federal securities laws, and
administering the largest dispute resolution forum for investors and
member firms. For more information, please visit our Web Site at
www.nasd.com.
Friday, January 21, 2005
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464
http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_013053&ssSourceNodeId=9
NASD Fines Scottrade, Inc. $250,000 for Improperly Extending Credit to
Cash Account Customers
Washington, D.C.—NASD announced today that it has fined Scottrade,
Inc., of St. Louis, MO, $250,000 for improperly extending credit to
customers in violation of federal securities laws and banking
regulations.
NASD determined that Scottrade permitted cash account customers to
purchase and sell securities in a series of trades without requiring
full cash payment for each purchase, in violation of Federal Reserve
Regulation T. Regulation T requires that customers trading in cash
accounts make full cash payment for each separate purchase without
regard to unsettled proceeds of any securities sold.
"The sanctions in this case reflect NASD’s continuing concerns about
securities firms improperly extending credit to cash-account
customers,” said NASD Vice Chairman Mary L. Schapiro. "In addition to
complying with federal securities laws and NASD rules, firms must
adhere to banking requirements, including Regulation T."
NASD found that from January 1, 2001 to September 28, 2001, Scottrade
allowed its cash account customers to purchase and sell securities
with the proceeds due from unsettled trades. The firm permitted this
trading to occur in over 27,500 transactions in more than 1,400 cash
accounts. Regulation T, however, requires full cash payment for the
purchase of any security in a cash account without relying upon the
anticipated proceeds of any unsettled trade in the account. The
Federal Reserve Board staff issued guidance on this issue in January
2000, one year before Scottrade’s misconduct commenced. Scottrade,
nevertheless, permitted its customers to execute numerous purchase and
sell transactions, on the same day, with unsettled funds well into
September 2001.
In settling this matter, Scottrade neither admitted nor denied the
charges, but consented to the entry of NASD’s findings.
This case is the latest enforcement action brought by NASD in the area
of cash account practices by firms that violate Regulation T. In March
2004, NASD brought a separate action against Ameritrade, Datek and
iClearing for similar cash account practices that violated Regulation
T. In that matter, NASD found that the firms permitted the trading in
over 2 million transactions in over 30,000 customer cash accounts.
NASD fined the firms $10 million for the violations.
Investors can obtain more information about, and the disciplinary
record of, any NASD-registered broker or brokerage firm by using
NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to
the public. In 2003, members of the public used this service to
conduct more than 2.8 million searches for existing brokers or firms
and requested almost 180,000 reports in cases where disclosable
information existed on a broker or firm. Investors can link directly
to BrokerCheck at www.nasdbrokercheck.com. Investors can also access
this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory
services, dedicated to investor protection and market integrity
through effective and efficient regulation and complementary
compliance and technology-based services. NASD touches virtually every
aspect of the securities business - from registering and educating all
industry participants, to examining securities firms, enforcing both
NASD rules and the federal securities laws, and administering the
largest dispute resolution forum for investors and member firms. For
more information, please visit our Web Site at
www.nasd.com.
Friday, January 21, 2005
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464
http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_002846&ssSourceNodeId=1108
NASD Fines Ameritrade, Datek and iClearing $10 Million For Improperly
Extending Credit and Allowing Trades That Avoided NASD Day Trading
Margin Rules
Washington, D.C.—NASD announced today that it has
fined Ameritrade, Inc., Datek Online Financial Services, LLC (Datek),
and iClearing, LLC $10 million for improperly extending credit to
customers in violation of federal securities laws. As a result of a
merger effective September 2002, Datek and iClearing became affiliates
of Ameritrade, Inc. of Omaha, NE.
NASD determined that the firms permitted cash account customers to
purchase and sell securities in a series of trades without requiring
full cash payment for each purchase in violation of Federal Reserve
Regulation T. Regulation T requires that customers trading in cash
accounts make full cash payment for each separate purchase without
regard to unsettled proceeds of any securities sold.
Specifically, the firms allowed their customers to make purchase
transactions based on proceeds due from unsettled trades. Ameritrade,
Datek and iClearing permitted this to occur in over 2 million
transactions in 30,000 customer cash accounts. NASD further found that
Ameritrade, Datek and iClearing permitted day trading in cash accounts
that, in many instances, would have required $25,000 minimum equity
under NASD rules and should have occurred only in a margin account.
NASD rules require a minimum of $25,000 of equity in a customer's
account if the customer is a "pattern day trader." A pattern day
trader is an individual that executes four or more day trades within
five business days.
"As day trading again becomes popular, firms must adhere to the
requirements of Regulation T and require customer payment for their
securities," said Mary L. Schapiro, NASD Vice Chairman. "The sanctions
imposed here today reflect not only the importance of these rules but
the firms' failure to timely respond to NASD's concerns."
NASD informed Datek and iClearing that these practices violated
Regulation T and the firms failed to comply with repeated NASD
warnings. Specifically, NASD informed Datek and iClearing in October
2001 that day trading in cash accounts without requiring full cash
payment for each purchase prior to its sale violated Regulation T. In
addition, NASD provided Datek and iClearing with two Federal Reserve
opinions that supported its position. NASD then informed Datek and
iClearing of potential disciplinary action if the firms continued to
permit their customers to trade in this manner. Despite these
warnings, Datek and iClearing continued to permit customers to use
unsettled proceeds to fund purchases in cash accounts.
Before their merger Datek informed Ameritrade that NASD had expressed
concern about trading in cash accounts and stated that the action
violated Regulation T. In addition, in July and August of 2002, Datek
gave Ameritrade three letters it had received from NASD informing the
firm that it was violating Regulation T and instructing Datek and
iClearing to cease the activity. NASD also instructed Ameritrade in
August 2002 in writing to immediately cease such activity and
instructed the firm in December to immediately implement a process to
prevent such trading. However, Ameritrade did not completely prevent
this type of trading until May 2003.
In September 2003 NASD issued an Investor Alert to remind investors
about the risks associated with trading on margin. The Investor Alert
can be found at, "Investing
with Borrowed Funds: No "Margin" for Error."
In settling this matter, Ameritrade, Datek and iClearing neither
admitted nor denied the charges.
Investors can obtain more information and the disciplinary record of
any NASD-registered broker or brokerage firm by calling NASD's
BrokerCheck. NASD makes available BrokerCheck at no charge to the
public. In 2003, members of the public used this service to conduct
more than 2.9 million searches for existing brokers or firms and
requested almost 180,000 reports in cases where disclosable
information existed on a broker or firm. Investors can link directly
to the program by going online to
www.nasdbrokercheck.com.
Investors can also continue to access this service by calling
1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory
services, dedicated to investor protection and market integrity
through effective and efficient regulation and complementary
compliance and technology-based services. NASD touches virtually every
aspect of the securities business—from registering and educating all
industry participants, to examining securities firms, enforcing both
NASD rules and the federal securities laws, and administering the
largest dispute resolution forum for investors and member firms. For
more information, please visit our Web Site at
www.nasd.com.
Thursday, March 11, 2004
Nancy A. Condon 202-728-8379
Michael Shokouhi 202-728-8304
http://www.nasd.com/web/groups/rules_regs/documents/notice_to_members/nasdw_003255.pdf
Executive Summary
On August 29, 2003, the Securities and Exchange Commission (SEC)
approved the adoption of NASD Rule 2370, prohibiting registered
persons from borrowing money from or lending money to a customer
unless (1) the member has written procedures allowing such lending
arrangements consistent with the rule; (2) the loan falls within one
of five prescribed permissible types of lending arrangements set forth
in the rule; and (3) the member pre-approves
the loan in writing.
The amendments to Rule 2370, as approved by the SEC on February 18,
2004, exempt from the rule’s notice and approval requirements lending
arrangements involving a registered person and a customer that is: (1)
a member of his or her immediate family (as defined in the rule); or
(2) a financial institution regularly engaged in the business of
providing credit, financing, or loans (or other entity or person that
regularly arranges or extends credit in the ordinary course of
business), provided the loan has been made on commercial terms that
the customer generally makes available to members of the general
public similarly situated as to need, purpose, and creditworthiness.
The amendments to Rule 2370 also limit the scope of the rule to
lending arrangements between registered persons and their customers,
rather than any customer of the firm.
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