Supervision and Compliance of Brokerage Firms

St. John's Legal Studies Research Paper No. 18-0006

PIABA 24th Annual Meeting Materials (2015)

17 Pages Posted: 15 May 2018

See all articles by Christine Lazaro

Christine Lazaro

St. John's University - School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: October 24, 2015

Abstract

Brokerage firms have certain obligations to ensure that their employees comply with applicable securities regulations. The Securities Exchange Act of 1934 (the “‘34 Act”) imposes liability on a brokerage firm for an employee’s violation of applicable rules and regulations under section 15(b)(4)(E), unless the firm can demonstrate that the firms has established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect any such violation by the firm. Additionally, a firm may also be culpable as a control person under section 20(a) of the ‘34 Act for an employee’s violation of applicable securities regulations if the firm has failed to establish an adequate system of supervision.

In addition, FINRA rules, promulgated pursuant to federal law, require that “[e]ach member shall establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”

FINRA has two types of supervision rules. There are rules specifically dedicated to supervision, and there are other rules which contain aspects of them which pertain to supervision. This article will first discuss the general supervisory rules, explaining what is required by the rules. The article will then discuss other FINRA rules which touch on supervision and inform a firm’s overall supervisory and compliance responsibilities. This includes rules regarding specific products, including equity securities, options, variable annuities, and direct participation programs. They also include rules governing aspects of the brokers’ business including private securities transactions and outside business activities. Finally, FINRA offers guidance and best practices with respect to supervision in certain areas. The article will conclude by discussing guidance as to the firms’ obligations with respect to supervising “problem brokers,” accounts of senior investors, and the development of new products.

Suggested Citation

Lazaro, Christine, Supervision and Compliance of Brokerage Firms (October 24, 2015). St. John's Legal Studies Research Paper No. 18-0006, PIABA 24th Annual Meeting Materials (2015), Available at SSRN: https://ssrn.com/abstract=3178388

Christine Lazaro (Contact Author)

St. John's University - School of Law ( email )

8000 Utopia Parkway
Jamaica, NY 11439
United States

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