Moloney Takes FINRA Rules for Boloney, According to FINRA’s Allegations Regarding Sales of Non-Traditional ETFs
Moloney Securities Company, Inc. was fined and censured by the Financial Industry Regulatory Authority (“FINRA”) relating to allegations that Moloney failed to establish and maintain a supervisory system regarding the sale of leveraged, inverse and inverse leveraged securities, collectively known as Non-Traditional ETFs.
Non-Traditional ETFs are designed to return a multiple of an underlying index or benchmark, the inverse of that benchmark, or both, over only the course of one trading session – typically a single day, according to FINRA. The performance of Non-Traditional ETFs over periods longer than a single trading session wildly differ from the performance of the underlying index or benchmark correlating with the same time period. FINRA has advised broker-dealers and their representatives that Non-Traditional ETFs are not typically suitable for retail investors who plan to hold them for more than one trading session due to the risks and the inherent complexity of the products.
Moloney allowed it representatives to recommend and sell Non-Traditional ETFs to customers from January 1, 2011 through December 31, 2012, according to FINRA. Despite the unique features and notable risks associated with Non-Traditional ETFs, Moloney failed to provide its representatives or supervisors with any trading or other guidance relating to the appropriateness of Non-Traditional ETFs for its customers, according FINRA. Additionally, Moloney did not provide reports to its supervisory personal to monitor either the length of time that customers held open positions in Non-Traditional ETFs or any losses associated with customers holding such positions, according to FINRA.
Moloney agreed to be censured and fined $20,000 without denying or admitting FINRA’s findings.
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