SEC warns B-Ds to do their homework

Commission looking into due diligence performed by brokerages; do you understand what you're selling?

May 21, 2012 @ 3:37 pm

By Bruce Kelly

The Securities and Exchange is looking at “several areas of high risk” in the securities industry, according to a senior SEC official.

They include broker-dealer due diligence, net capital levels at broker-dealers and “dark pools” of liquidity, said Julius Leiman-Carbia, associate director in charge of the National Broker-Dealer Examination Program in the SEC's Office of Compliance Inspections and Examinations.

A dark pool is a source of liquidity that is nondisplayed — that is, it does not publicly disseminate quotes, according to PriceWaterhouseCoopers LLC. Trading volume of U.S. stocks through dark pools has increased in recent years.

“We're looking at due diligence,” Mr. Leiman-Carbia said in a panel discussion Monday afternoon at the annual meeting of the Financial Industry Regulatory Authority Inc. in Washington. He said he wonders if brokers truly understand all the products that they are selling.

The SEC is also focusing on “the division between the investment adviser and broker-dealer sides” of firms that are dually registered, including “what types of controls are in place when money is [placed with] the investment adviser,” he said. Is there a good reason why it's there, other than the firm can make money this way, he asked.

The SEC is also looking at firms' levels of net capital, which each broker-dealer must maintain in order to stay open for business.

And the commission also is trying to pinpoint investor fraud, Mr. Leiman-Carbia said. Indeed, the SEC is looking at the country as a whole to identify particular areas where fraud is prevalent, he said. One benefit would be to locate regions where senior citizens are defrauded.


What do you think?

View comments

Recommended for you

Featured video


5 tech innovations you can't afford to ignore

Technology innovation is always top of my at Pershing. What does Pershing have on tap for 2018 and beyond.

Latest news & opinion

Meet our new 40 Under 40s

For a fifth year, InvestmentNews is proud to shine a spotlight on the amazing accomplishments and potential of top young financial professionals.

Merrill re-evaluates commission ban in retirement accounts

The wirehouse's wealth management group announces a fresh look at the ban now that the DOL rule is on the brink of death.

10 biggest retirement mistakes

Adhere to enrollment deadlines and distribution rules or pay a hefty penalty.

DOL fiduciary rule on brink of death as key deadline passes

Justice Department didn't petition the Supreme Court to rehear the case. A mandate from the 5th Circuit would finally lay the fiduciary rule to rest.

Finra to overhaul broker information system, cut compliance costs for broker-dealers

The move is intended to cut compliance costs for firms as well as make the registration and disclosure process more efficient.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print