The Financial Industry Regulatory Authority (FINRA) fined Stifel, Nicolaus & Co., a St. Louis, Missouri based broker-dealer $750,000 for not properly accounting for customer assets in a reserve fund as well as assets held in a proprietary trading account. The firm allegedly used customer assets as collateral for bank loans it procured over 1999 until 2012, but it did not appropriately account for such use of customer assets in a reserve fund meant to back up this collateral, according by a FINRA document signed on April 8th by FINRA’s Department of Enforcement. Stifel also made mistakes in calculating how much money it needed on hand for its Proprietary Accounts of Introducing Brokers and Dealers (PAIB), a reserve account for broker-dealer assets. Currently, there is a securities law that states that broker-dealers using customer money as collateral for a loan must maintain a customer reserve account, which helps ensure funds are available to pay investors in the event of a firm’s liquidation. Brokerages must compute the amount to go into the account on the last business day of the week and month. This practice potentially reduces the amount Stifel would need to keep in reserves to cover customer collateral.
In one instance over a five week period in 2012, FINRA found that Stifel’s activity in this regard had the substitution of customer securities not occurred, an additional deposit of approximately $36 million would have been required to fund the customer reserve account. In another instance from March 2013 to November 2013, Stifel incorrectly calculated requirements for its PAIB, which led to eight “hindsight deficiencies,” meaning the firm did not have enough money in its reserve deposit account, a violation of securities law.
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