The Financial Industry Regulatory Authority has fined two firms at total of US$1.4 million, for various stock loan improprieties, the regulator said Wednesday.

The regulator said that the sanctions come as part of its investigation of stock loan practices in the financial industry.

FINRA fined Raymond James & Associates, Inc. US$1 million “for making unjustified and improper payments to finder firms that provided no service in locating securities or had no involvement in the stock loan transaction for which they were paid.”

Additionally, RBC Capital Markets Corp. and Raymond James were both fined for using a non-registered individual (who had been barred from the securities industry by the Securities and Exchange Commission), to perform stock loan functions requiring registration.

In concluding these settlements, Raymond James and RBC neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

“Finders for stock loan transactions can play an important role in the markets by assisting borrowers in locating securities, especially hard-to-borrow stocks,” said Susan Merrill, FINRA executive vice president and chief of enforcement. “But Raymond James traders made unjustified payments to finders who provided no service. Moreover, both firms exposed the market to the activities of an unqualified and unsupervised individual by allowing a non-registered person who had been barred from the securities industry to perform stock loan functions.”

In a statement, Raymond James stressed that the practices that were the subject of this action took place from 2002 to 2005, and did not affect clients or their accounts. Additionally, the firm said that in early 2005, “as a result of growing concerns about alleged abuses in the industry-wide practice”, it voluntarily made changes to its business practices and to the supervision of its stock loan business, including the elimination of stock loan finders. In 2008, it retained an outside consultant to review its stock loan practices, and it “concluded there were no significant issues”, the firm said.

IE