The Financial Industry Regulatory Authority fined its second firm - TradeStation Securities Inc. – for a variety of shortcoming in client communications following a three-year inquiry into the practices of certain broker-dealers that actively communicate with retail customers concerning crypto assets and crypto asset-related services.
TradeStation Securities agreed to an $85,000 penalty, according to the FINRA order. The firm agreed to FINRA’s findings in the matter without admission or denial, and a spokesperson for TradeStation Securities on Monday declined to comment.
Most of the firm’s communications that violated industry rules failed to prominently disclose that the crypto assets were not offered by TradeStation Securities, but were offered by an affiliate which, unlike TradeStation Securities, was not a registered broker-dealer, according to the FINRA order released Friday.
The firm also fell short on describing the risks involved in investing in volatile crypto assets.
“From July to September 2022, TradeStation Securities distributed retail communications concerning crypto assets or crypto asset-related services which failed to clearly disclose that crypto assets were not offered through a registered broker-dealer or which did not provide a fair and balanced presentation of the benefits and risks of the products discussed,” according to the FINRA order.
“Crypto currencies like Bitcoin have never been approved securities to be sold by brokerage firms,” said Sander Ressler, managing director of Essential Edge Compliance Outsourcing Services. “Broker-dealers should not be directing clients on how or where to invest in crypto. They’re only asking for trouble by doing so.”
He added that the brokerage industry is evolving. For example, firms are now selling exchange-traded funds (ETFs) that invest in Bitcoin, with the distinction that those ETFs are deemed securities by the Securities and Exchange Commission.
FINRA launched its inquiry in 2022 and in January 2024 reported that brokerages were failing to tell the full truth about cryptocurrency assets when they discussed them with customers.
At the time, FINRA flagged potential violations of industry rules in 70% of the materials it reviewed during a targeted examination of firm communications regarding crypto products and services. The broker-dealer self-regulator probed 500 communications between brokerages and retail investors.
Brokerages failed to comply with FINRA rules that require their communications with the public be “fair and balanced” and provide a sound basis for evaluating facts regarding products and services. FINRA prohibits false, exaggerated and misleading claims.
In May, FINRA fined Firstrade Securities $85,000 for violations of industry rules involving crypto products and services similar to TradeStation Securities.
Certain content on TradeStation Securities’ website describing crypto asset-related services did not clearly state what business offered crypto assets, according to the FINRA order.
“In addition, some of the violative communications discussed crypto assets offered through the affiliate without a balanced description of the associated risks of investing in those assets,” according to FINRA.
“For example, one page on TradeStation Securities' website contained the statement: ‘TradeStation provides award-winning trading and analysis platforms and self-clearing online brokerage services for stocks, ETFs, Equity and index options, commodity and financial futures, futures options, and cryptocurrencies,’” according to the FINRA order.
This statement failed to distinguish between the products and services offered by the firm and those offered by its affiliate. This communication could potentially have confused retail investors about which entity was offering the services and what regulations and protections applied.
TradeStation is one of the quantitative trading platforms for RIAs and advisors. Compare software options and features to boost investment strategies in this guide.
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