The US Financial Industry Regulatory Authority, or FINRA, has recently had Moloney Securities, Co., Inc agreed to pay a fine of $100,000. This stands as part of the settlement agreement between the two parties.
Failing To Monitor Or Counteract “Marking The Close” Activities
During the Relevant Period marked from January of 2013 to April of 2015, Moloney had failed to establish and maintain a supervisory system. This system was mandated to be reasonably designed in order to achieve compliance with the applicable Rules of FINRA and NASD when it comes to the detection and subsequent prevention of manipulative trading activities.
In particular, trading activities known as marking-the-close. Furthermore, they failed to implement a system that complies with the suitability rule of FINRA in regard to the concentration and qualitative suitability of high-risk products.
The practice of “Marking the close” is executing transactions near or at the end of a trading day. This is done in order to affect the closing price of the security.
Should this be successful, a marking activity is capable of making the value of security appear higher or lower than it was otherwise trading as within the trading day itself. This, in turn, could allow the manipulator the benefit from the price that was artificially affected.
As one would imagine, the practice of marking the close stands in violation of Section 10(b) of the Securities Exchange Act of 1934, or the SEA. It violates Rule 10b-5 of the SEA, as well as the FINRA Rules of 2020 and 2010.
No Reviews Or Written Procedures
Within this Relevant Period, Moloney had failed to establish or otherwise maintain a supervisory system that is reasonably designed in order to achieve compliance regarding the aforementioned securities regulations and laws. Notably, the applicable rules of FINRA prohibit the use of marking the close.
In particular, Moloney failed to conduct any supervisory reviews or surveys searching for possible indicators of marking the close activities. This led to the firm failing to establish, maintain, or otherwise enforce a written supervisory procedure to monitor for potential marking the close activities.
The firm was discovered not to have any system or written procedure in place that was reasonably designed to supervise for the possible signs of marking the close activity, as well.
Failure To Investigate Representatives
Furthermore, Moloney has failed to make a reasonable investigation of two of its representatives. These representatives had frequently executed purchase or sale orders of thinly-traded security: The common stocks of Company X. This was done numerous times at or close to the closing time of the market within the year of 2013.
Through foregoing to give a reasonable investigation, Moloney has further violated NASD Rule 3010 as well as the FINRA Rules 3110 and 2010.