finra

FINRA

 

For Release:
Contact:
Tuesday, April 9, 1996
Nancy A. Condon - (202) 728-8379
John Pinto - (202) 728-8233

NASD Fines and Censures Gruntal & Co.

Washington, D.C.--The National Association of Securities Dealers, Inc. (NASD) today announced it has fined Gruntal & Co., Inc. (Gruntal) $200,000 and censured the firm for trading ahead of its customers' limit orders; late reporting of trades; and failing to adequately supervise in these areas. In addition, Gruntal agreed to reimburse customers who may have been disadvantaged by these practices.

 

"Today's enforcement action against Gruntal demonstrates the importance of the NASD limit-order rules and our intention to rigorously enforce them," said NASD Regulation, Inc., President, Mary L. Schapiro.

 

These violations were uncovered by the NASD District No. 10 Office in New York during its current routine examination of Gruntal, and decided by the District's Business Conduct Committee.

 

Without admitting or denying the allegations, Gruntal agreed to NASD findings that it failed to comply with the NASD limit-order protection rules by executing transactions for its own account without first executing its customers' limit orders, a practice known as "trading ahead." While these limit orders were eventually executed, Gruntal's trading ahead represented a failure to fulfill the limit-order protection obligation incumbent on all NASD member firms.

 

Under the terms of the settlement, Gruntal is required to pay $100,000 of the fine to the NASD immediately, with the remaining $100,000 designated to reimburse any customers who were harmed as a result of Gruntal's improper activities. Gruntal has 45 days to hire an independent consultant to identify any customers who may have been harmed and therefore merit restitution. In the event that the total restitution does not equal $100,000, the difference will be paid to the NASD within 60 days after the consultant issues its final report.

 

Mandating the use of outside professionals to monitor and periodically report on regulatory compliance in areas such as internal controls and supervisory systems, as well as to recommend new or enhanced policies, has been used successfully by the SEC and NASD in the past as part of disciplinary sanctions imposed in enforcement actions. To date, Gruntal has reimbursed customers $7,800.

 

"The NASD will not tolerate instances where a member places its own interests ahead of those of its customers," said John Pinto, NASD Executive Vice President for Regulation.

 

The NASD also found that Gruntal failed to timely report 103 transactions in securities listed on The Nasdaq Stock Market within 90 seconds of execution, as required under NASD regulations. Gruntal also failed to make any report of two other transactions it was obliged to report.

 

Finally, the NASD found that Gruntal failed to enforce its supervisory procedures to ensure compliance with NASD regulations.