The Financial Industry Regulatory Authority has fined NewEdge Securities, the brokerage arm of NewEdge Capital Group $90,000, in addition to restitution of $44,927.83 for charging unfair prices on 62 corporate bond transactions and six municipal bond transactions.
Along with the fine and restitution, the firm has been censured for violating FINRA Rules 2121 and 2010, as well as MSRB Rules G-30 on fair and reasonable prices and Rule G-17 on fair dealing. The firm, which neither admitted or denied FINRA's findings, also failed to have the requisite written supervisory procedures in place, violating FINRA Rules 3110 and 2010 and MSRB Rule G-27 on supervision.
The violations happened from June 2020 to March 2023, "where the firm's costs or proceeds were no longer contemporaneous, the firm failed to consider the appropriate pricing information," FINRA said. "In most of these transactions, the firm used inter-dealer bid or offer quotations to determine the prevailing market price when a contemporaneous inter-dealer transaction price was available."
FINRA offers an example of the logic NewEdge employed. In April 2022, the firm purchased 80 bonds for a price of $129.383 based on "the best bid identified at the time of trade," FINRA said. NewEdge then applied a 2.23% mark-down and paid the customer $126.50 for the bonds, when there was an inter-dealer transaction less than half an hour before at a price of $131.05.
"As a result of its failure to accurately identify the prevailing market price of the bond, the firm underpaid the customer $1.63 per bond for the bonds purchased, resulting in harm to the customer of approximately $1,300," FINRA said.
NewEdge failed to catch these errors and failed to supervise compliance with fair pricing rules.
"During the relevant period, one branch office of the firm traded outside the platform the clearing firm offered," FINRA said. "The firm compliance principal tasked with reviewing that branch's prevailing market price calculations reviewed a daily blotter to assess transactions for fair pricing," they added. "However, the blotter did not include sufficient information to review the prevailing market price calculation. The firm's compliance principal did not routinely review the prevailing market price calculation beyond checking for clerical errors."
NewEdge has since implemented a new, firm-wide system to address prevailing market price calculations.
The firm did not respond to request for comment for this story.
