FINRA fines firm $110,000 for unfair prices
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The Financial Industry Regulatory Authority has charged Florham Park, New Jersey based broker The Jeffrey Matthews Financial Group $110,000 for charging unfair prices on 86 municipal bond transactions.
Without admitting or denying the findings, the firm agreed to a censure, a total fine of $125,000, of which $110,000 is for violating Municipal Securities Rulemaking Board Rules G-30 on pricing, G-17 on fair dealing and G-27 on supervision, in addition to customer restitution of $112,932.02.
According to FINRA, between April 2020 and June 2023, the firm charged unfair mark ups on 86 municipal bond transactions and 12 corporate bond transactions by failing to consider appropriate pricing information to determine the prevailing market price.
“Instead, when selling to customers, the firm in all cases used its own cost to determine the prevailing market price, even when its cost was not contemporaneous,” FINRA said. “And when purchasing from customers, the firm in all cases used inter-dealer bid or offer quotations to determine the prevailing market price.”
As an example, FINRA notes in the complaint that the firm sold 250 bonds in May 2020 for $97.33 “based on the firm’s average cost in purchasing the bonds between April 13 and April 16, 2020,” FINRA said. “The firm applied a 1.714% mark-up and charged customers $99 for each bond.” But the price of the bonds had decreased since the firm purchased them, and the prevailing market price was $94.60.
“Had the firm calculated its mark-up using the correct prevailing market price, it would have charged the customer approximately $695 less than it did,” FINRA said. For the 86 municipal bond and 12 corporate bond mark-ups, the firm caused customers to pay a total of $112,932.02 in excess costs.
The firm failed to catch the mistakes through its supervisory system, violating MSRB Rule G-27 on supervision and FINRA Rules 3110 and 2010. “The firm in all cases used its own costs to determine the prevailing market price, even when its costs were not contemporaneous,” FINRA said. “And when purchasing from retail customers, the firm in all cases used bids received as the prevailing market price to determine the prevailing market price.”
The firm’s supervisory reviews were focused only on the size of the mark-up and mark-down percentages and had no way of determining the appropriateness of the prevailing market price.
In a statement, Ginny Colarusso, chief compliance officer for The Jeffrey Matthews Financial Group chalked some of the firm’s failures to the immense amount of volatility and confusion being sewed through fixed income markets at the beginning of the COVID-19 pandemic. The firm has since rectified the errors.
“The Jeffrey Matthews Financial Group (JMFG) recently underwent a FINRA review of fixed income transactions which focused on the firm’s calculation of the Prevailing Market Price (PMP) on trades. The review analyzed trades occurring between 2020 and 2023 when the fixed income market experienced high volatility due to both COVID and the Federal Reserve raising interest rates at a pace unseen in the last 40 years,” Colarusso said in a statement. “FINRA identified 100 trades where the PMP did not align with FINRA’s staff calculations, during a time when JMFG executed tens of thousands of trades on a yearly basis. Most of those 100 trades involved bonds with unusually low or virtually no liquidity.”
“To safeguard against any reoccurrence, JMFG enhanced its Trading Desk with transaction analytics software from Bondwave,” Colarusso said. “This software assists JMFG’s calculation of the PMP will be immediately flagged and corrected before a confirmation is generated. The firm’s WSPs have been updated to account for the new PMP calculation process and JMFG has trained all the representatives regarding it.”
The firm added that they believe these changes “reflect full compliance with FINRA Rules 2010, 2121 and 3110 as well as MSRB Rules G-17, G-27 and G-30.”
This action comes just a week after it was
