Broker Fined for Selective Dissemination of Research Notes

A broker settled FINRA charges for distributing research notes to sales and trading personnel, and select customers, in advance of the publication of the official research report.

In the Letter of Acceptance, Waiver and Consent, FINRA stated that the firm's research department produced research notes containing the views of research analysts regarding events concerning an issuer (e.g., an earnings release). FINRA found that these research notes were distributed to select customers before the final research report was issued. FINRA found that in certain cases the recipients of the research reports traded in the securities ahead of the publication of the final report. Further, FINRA determined that the firm failed to implement a supervisory system to prevent (i) the flow of nonpublic research notes to sales and trading personnel and (ii) the selective dissemination of research reports to customers.

As a result, FINRA determined that the firm violated FINRA Rules 5280(b) ("Trading Ahead of Research Reports"), 2241(g) ("Research Analysts and Research Reports"), 3110 ("Supervision") and Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure and (ii) a $450,000 fine.

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