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'Rocky Mountain High' Markups on Corporate Bonds
by Howard Haykin
A Centennial, CO-based broker-dealer was caught charging customers an excessive mark-ups on principal transactions involving a single corporate bond. To settle FINRA charges, the firm agreed to pay a $45K fine and pay out $43K in restitution to affected customers.
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Were these violations truly isolated instances – i.e., “one off” situations – which are not indicative of this broker-dealer's usual compliant business approach?
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Were excessive mark-ups applied on this single group of bond transactions because the firm was more accustomed to selling bonds to customers on an agency, rather than a principal, basis?
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Was a new or substitute trader manning the bond desk at the time the excessive mark-ups were applied?
WHAT WENT WRONG. From August 28, 2015 through September 25, 2015, the broker-dealer, which has been a FINRA member since 1977, charged its customers prices that were not fair in 71 principal transactions involving a single corporate bond. The mark-ups ranged from 4.64% to 4.84% (from 8/28-9/17) and from 5.01% to 5.07% (from 9/21 to 9/25). In all instances, the broker-dealer had sold the bonds on a principal basis to its customers after it purchased those bonds from other broker-dealers.
This recent case was reported in FINRA Disciplinary Actions for February 2019.
For further details, go to ... FINRA Disciplinary Actions Online, and refer to Case #2015047738901.
