Moors & Cabot, Inc. has been fined by the Financial Industry Regulatory Authority (“FINRA”) for failing to provide written disclosure to customers of around $7.5 million of compensation from earnings of about 11,500 trades in preferred securities.
While acting in a principal capacity, Moors & Cabot, Inc. purchased preferred shares from one of its customers and sold the same shares to a different customer at the same time. The customers who bought the shares paid a higher price than Moors paid for them from the customer who sold them. There were no automatic recordings of the time of order entries and instead had the firm’s representatives phone the trading desk to report the trades. Also, the firm’s daily supervisory report did not allow it to review the accuracy of order receipt times for the principal trades. Moors also never transmitted order receipt times, account types or share quantities to the Order Audit Trail System (OATS). In addition, two submitted trade reports incorrectly reported customer sell orders as buy orders.
The FINRA findings stated that:
- Moors & Cabot, Inc. violated Section 10 of the Securities Exchange Act of 1934, FINRA Rules 2232(a) and 2010, NASD Rule 2230, by failing to provide written disclosure to customers of the $7.5 million from the preferred securities trades and incorrectly disclosed the use of an average price on trade confirmations sent to its customers.
- Moors & Cabot, Inc violated FINRA Rules 3110(a) and (b) 2010 and NASD Rules 3010(a) and (b) for failing to create or maintain a supervisory system to comply with rules for the recording of order times and never enforced its WSPs to follow supervisory procedures regarding compensation disclosure on customer confirmations.
- From January to February 2017, Moors & Cabot, Inc committed trade reporting violations by:
- violating FINRA Rules 5310 and 2010 for failing to execute customer orders.
- violating FINRA Rules 7440, 7450, and 2010 for failing to record and report order information to FINRA’s Order Audit Trail System (“OATS”).
- violating FINRA Rules 7230A, 7330, and 2010 for failing to report order information to two trade reporting facilities.
- violating Section 17(a) of the Exchange Act and FINRA Rules 4511 and 2010 for failing to create and maintain required books and records.
As a result of Moors & Cabot, Inc.’s misconduct, an AWC was issued, and the firm was censured and fined $250,000.