What if the spouse or domestic partner of a stockbroker or trader wants to open an account at a brokerage firm other than the one employing the registered person? Is there an important difference between the registered rep "opening" an account for the spouse/partner versus the registered rep merely handling the mechanics of preparing the new account forms or entering the keystrokes for an online form? If the spouse/partner tells the registered rep to log on to their brokerage account and enter that trade they were talking about last night, does that rise to the regulatory level of the registered rep "entering a trade" or is the trade attributed to the non-registered account holder? Why does Wall Street distinguish between spouses and domestic partners when it comes to regulating registered reps? And how does this get us to Johnny Rotten of the Sex Pistols?
Sadly, today's BrokeAndBroker.com Blog doesn't have a lot of answers to those questions but, on the positive side, we are going to point out how such considerations may arise. If nothing else, take this as a thought piece because a new FINRA rule is coming down the pike and you better be prepared for some of the new requirements and prohibitions. Love and marriage on Wall Street.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Edward R. Segur III submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Edward R. Segur III, Respondent (AWC 2015044591701, May 20, 2016).
Segur was first registered in 1998 and from November 2013 to April 2015 he was registered with FINRA member firm Four Points Capital Partners LLC.
The AWC discloses a prior regulatory history consisting of a July 2014 Arkansas Securities Commissioner Consent Order, which imposed upon Segur a $4,000 fine of communicating during a cold call to an Arkansas resident "without reasonable justification that a particular stock would experience a dramatic increase in value." The AWC discloses a second prior regulatory event involving a January 2012 Consent Order with the New Hampshire Bureau of Securities Regulation that imposed a $17,500 fine upon Segur for cold calling a resident whose telephone number was on the National Do Not Call Registry.
In the Name of His Wife
The AWC asserts that:
In September 2014, while registered at Four Points, Segur opened an online trading account at another member firm on behalf of his wife. The account was opened in Segur's wife's name. Thereafter, and while registered at Four Points, Segur accessed the account and made his own trades. Segur never provided written notice of the account to Four Points, notwithstanding that the firm's written supervisory procedures required its registrants to notify the firm, in writing, before opening an outside securities account. By this conduct, Segur violated NASD Conduct Rule 3050(c) and FINRA Rule 2010.
In the Name of Another Guy's Wife
The AWC further asserts that:
While registered at Four Points, Segur and DI's husband opened an account for customer DI. Dl's husband's name was not on the account, and DI never provided written authorization for Segur to accept trading instructions from her husband. Further, Four Points never accepted Dl's account as a discretionary account.
From January to June 2014, Segur exercised discretion without written authorization in Dl's account by taking instructions from Dl's husband to trade in the account. Segur thereby violated NASD Conduct Rule 2510(b) and FINRA Rule 2010.
The AWC asserts that:
On May 1, 2015, Four Points filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") stating that Segur's registration was voluntarily terminated effective April 22, 2015. The Form U5 also disclosed that at the time of his termination Segur was under internal review for "undisclosed brokerage accounts of spouse maintained at another broker dealer."
In accordance with the terms of the AWC, FINRA imposed upon Segur a $7,500 fine and a 30-calendar-day suspension from associating with any FINRA member firm in any capacity.
Bill Singer's Comment
3210. Accounts At Other Broker-Dealers and Financial Institutions
(a) No person associated with a member ("employer member") shall, without the prior written consent of the member, open or otherwise establish at a member other than the employer member ("executing member"), or at any other financial institution, any account in which securities transactions can be effected and in which the associated person has a beneficial interest.
(b) Any associated person, prior to opening or otherwise establishing an account subject to this Rule, shall notify in writing the executing member, or other financial institution, of his or her association with the employer member.
(c) An executing member shall, upon written request by an employer member, transmit duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account subject to this Rule
* * * Supplementary Material * * *
.01 Account Opened Prior to Association With Employer Member. If the account was opened or otherwise established prior to the person's association with the employer member, the associated person, within 30 calendar days of becoming so associated, shall obtain the written consent of the employer member to maintain the account and shall notify in writing the executing member or other financial institution of his or her association with the employer member.
.02 Related and Other Persons. For purposes of this Rule, the associated person shall be presumed to have a beneficial interest in, and to have established, any account that is held by:
(a) the spouse of the associated person;
(b) a child of the associated person or of the associated person's spouse, provided that the child resides in the same household as or is financially dependent upon the associated person;
(c) any other related individual over whose account the associated person has control; or
(d) any other individual over whose account the associated person has control and to whose financial support the associated person materially contributes.
For purposes of paragraphs (a) and (b) of this Supplementary Material .02, an associated person need not be presumed to have a beneficial interest in, or to have established, an account if the associated person demonstrates, to the reasonable satisfaction of the employer member, that the associated person derives no economic benefit from, and exercises no control over, the account.
.03 Transactions and Accounts Not Subject To This Rule. The requirements of this Rule shall not apply to transactions in unit investment trusts, municipal fund securities as defined under MSRB Rule D-12, qualified tuition programs pursuant to Section 529 of the Internal Revenue Code and variable contracts or redeemable securities of companies registered under the Investment Company Act, as amended, or to accounts that are limited to transactions in such securities, or to Monthly Investment Plan type accounts.
.04 Accounts At a Financial Institution Other Than a Member. With respect to an account subject to this Rule at a financial institution other than a member, the employer member shall consider the extent to which it will be able to obtain, upon written request, duplicate copies of confirmations and statements, or the transactional data contained therein, directly from the non-member financial institution in determining whether to provide its written consent to an associated person to open or maintain such account.
.05 Other Financial Institution. For purposes of this Rule, the terms "other financial institution" and "financial institution other than a member" include, but are not limited to, any broker-dealer that is registered pursuant to Section 15(b)(11) of the Exchange Act, domestic or foreign non-member broker-dealer, investment adviser, bank, insurance company, trust company, credit union and investment company.
All of which reminds me of Johnny Lydon a/k/a/ Johnny Rotten and his post-Sex Pistols' band Public Image Ltd. Remember the lyrics from "Rules and Regulations":
Rules and regulations
Rules and regulations
Have no fear of laughter
Wait for what comes after
It's you they're looking out for
It's you they're coming after
Innocent not guilty
Not to this committee