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TAG | Northern Trust Corp

Jun/11

12

FINRA Fines Northern Trust Securities $600,000 for Failure to Supervise Accounts

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FINRA, the Financial Industry Regulatory Industry, has found that during an 18 month period, Northern Trust Securities, failed in their supervision and monitoring of 43.5% of their total business.

FINRA also stated that “Northern Trust failed to monitor customer accounts for potentially unsuitable levels of concentration in CMOs, in large part because it used an exception reporting system that failed to capture or analyze substantial portions of the firm’s business”.  

These FINRA findings raise questions and doubts about broker-dealer reporting systems in general.  The failure of this supervision and exception reporting is not a question of software or technology.  Almost every failure of an automated exception reporting system relates to very human error in the design and implementation of the exception reporting rules and criteria.   These rules and criteria are established by the individual broker-dealer that implements an automated exception reporting system.  The software provider is providing the means and opportunity to generate the exception reporting.  The broker-dealer is defining the rules and establishing analysis standards.  FINRA reported that almost 50% of Northern Trust Securities business went without analysis, including all of the trading in CMO’s.   The potential risk to investors of over-concentration in CMO’s during the period in question, October 2006 to October 2009, would dwarf the amount of the FINRA fine.

It should not have gone unnoticed by Northern Trust that such a large percentage of their overall business was “escaping” surveillance.  Having such a large percentage of a broker-dealer’s business pass without analysis may be dramatic but, then again, what percentage is acceptable?  Implementation of an automated exception reporting system by a broker-dealer is only the beginning of a compliance and surveillance process.  An automated exception reporting system requires constant monitoring and audit.  In the absence of that, the broker-dealer exposes their business to severe potential failures of supervision and exception reporting. 

If you or a family member have invested with Northern Trust and feel your account was not properly supervised, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.
  

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Jun/11

8

Northern Trust Securities Fined by FINRA for Lack of Supervision

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WASHINGTON — In a June 2, 2011 article on FINRA’s website it stated that the Financial Industry Regulatory Authority (FINRA) announced  it has fined Northern Trust Securities $600,000 for deficiencies in supervising sales of collateralized mortgage obligations (CMOs) and failure to have adequate systems in place to monitor certain high-volume securities trades.

It was written in the FINRA article that FINRA found, from October 2006 through October 2009, Northern Trust failed to monitor customer accounts for potentially unsuitable levels of concentration in CMOs, in large part because it used an exception reporting system that failed to capture or analyze substantial portions of the firm’s business, including all CMO transactions, certain trades of 10,000 equity shares or more, and certain trades of 250 or more of fixed-income bonds. FINRA found that from January 2007 to June 2008, 43.5 percent of the firm’s business was excluded from review.

Also, FINRA found that the absence of systems to monitor equity trades of over 10,000 shares or fixed income trades of over 250 bonds also resulted in a failure to review these trades for suitability, concentration, excessive trading, excessive mark-ups or commissions, or for trading in restricted stocks.

 Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Northern Trust’s deficient systems and procedures allowed more than 40 percent of its transactions to proceed without review, which in turn left vulnerable investors exposed to the risk of losing all or a substantial portion of their principal through potential over-concentration in CMOs.”

According to FINRA, in concluding this settlement,  orthern Trust neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

This article was obtained on FINRA’s website.

If you or a family member have invested with Northern Trust and feel your account was not properly supervised, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

16

Additional ETFs Close as Funds Flood the Market

Comments off · Posted by admin in FINRA

Another great article on ETFs by Jessica Toonkel, appeared in Investmentnews on February 13, 2011.  She states that with fund firms launching a seemingly endless parade of exchange-traded funds, a dark side to this glut of offerings is emerging: Portfolio liquidations, once rare, are becoming more common.

This trend is frightening some financial advisers. Indeed, some said that they are more than a little worried about getting stuck in an ETF that ends up being shut down.

“With the proliferation of ETFs, this is becoming a greater concern,” Sailesh S. Radha, a vice president at CCM Investment Advisers LLC, a registered investment advisory firm that manages $2.5 billion in assets, said last week at IndexUniverse.com’s Inside ETFs conference.

Toonkel goes on to say that for advisory firms such as CCM, which has a $20 million country rotation portfolio, choosing the right fund is vital to keeping clients’ trust.

“Telling an investor that an ETF is shutting down is not news you want to give them,” Mr. Radha said.

Although as more advisers rush into sector-based ETFs, the chance of being in a fund that closes is on the rise. In 2006, just one ETF closed, according to Morningstar Inc. In 2007, none did. But in the past three years, there have been 160 ETF liquidations.

For example, last year, Grail Advisors LLC, which is up for sale, and Claymore Securities Inc. closed a number of funds. Grail closed two of its seven ETFs in August and Claymore closed four ETFs in October because they failed to attract assets.

CAN YOU SPOT TROUBLE?

The advisers may be able to spot trouble before it strikes, said Ron Rowland, president of Capital Cities Asset Management Inc., who runs a monthly column about ETFs in danger of closing in his Invest with an Edge newsletter. “There is no specific sector that is usually represented in the list, but it’s a lot of smaller ETFs,” he said. Mr. Rowland said that ETFs headed for trouble tend to have a similar profile. An ETF that has been around for at least 28 months and has less than $10 million in assets should raise a red flag for advisers, he said.

Also, Mr. Rowland gives new ETFs a six-month grace period to gain assets before they become eligible for his ETF deathwatch.

It is important to pay attention to how long an ETF has been around.

“No one launches ETFs then closes them a couple months later, except for Northern Trust,” said Matt Hougan, president of ETF analytics at IndexUniverse.com. Northern Trust Corp. closed 17 ETFs last February, just 11 months after launching them.

Toonkel goes on to say that advisers also should pay attention to how an ETF trades and whether the fund is best-in-class, said Matt Hougan, president of ETF analytics at IndexUniverse.com. An ETF may have very little in assets, but if it is one of the few funds in an asset class that is poised to take off, the fund may succeed, he said.

These advisers also should take note of the investment adviser for the funds.

“As long as you have a few ETFs that are the moneymakers, you can afford to have a few that take longer to gain assets,” an executive said.

When ETF providers terminate funds, they often put out a press release and let investors know that the liquidation will take place in three to four weeks, conference participants said. Often the providers will encourage investors to stay in the funds until they are liquidated, at which time the providers will pay the investors back. Mr. Rowland warns investors against being swayed by this pitch.

THE ‘SALES HOOK’

“The sales hook is that if you go with them through the liquidation, you save yourself the commission,” he said. “But the risks far outweigh the savings.” For one thing, many ETFs hit investors with a termination fee. Also, fund operators often start liquidating ETFs slowly, which can lead to tracking errors during the wind-down period, Mr. Rowland said.

Sticking with a fund through liquidation could cause advisers to lose an opportunity to put their money somewhere else. “You usually get your money back within six to 10 days of liquidation,” Mr. Rowland said. “However, you have to wait those six to 10 days, and you may have lost an opportunity to employ that cash elsewhere.”

If you have invested in ETFs and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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