Friday, January 21, 2005
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464
NASD Fines Scottrade, Inc. $250,000 for Improperly Extending Credit to Cash Account Customers
Washington, D.C.—NASD announced today that it has fined Scottrade, Inc., of St. Louis, MO, $250,000 for improperly extending credit to customers in violation of federal securities laws and banking regulations.
NASD determined that Scottrade permitted cash account customers to purchase and sell securities in a series of trades without requiring full cash payment for each purchase, in violation of Federal Reserve Regulation T. Regulation T requires that customers trading in cash accounts make full cash payment for each separate purchase without regard to unsettled proceeds of any securities sold.
"The sanctions in this case reflect NASD’s continuing concerns about securities firms improperly extending credit to cash-account customers,” said NASD Vice Chairman Mary L. Schapiro. "In addition to complying with federal securities laws and NASD rules, firms must adhere to banking requirements, including Regulation T."
NASD found that from January 1, 2001 to September 28, 2001, Scottrade allowed its cash account customers to purchase and sell securities with the proceeds due from unsettled trades. The firm permitted this trading to occur in over 27,500 transactions in more than 1,400 cash accounts. Regulation T, however, requires full cash payment for the purchase of any security in a cash account without relying upon the anticipated proceeds of any unsettled trade in the account. The Federal Reserve Board staff issued guidance on this issue in January 2000, one year before Scottrade’s misconduct commenced. Scottrade, nevertheless, permitted its customers to execute numerous purchase and sell transactions, on the same day, with unsettled funds well into September 2001.
In settling this matter, Scottrade neither admitted nor denied the charges, but consented to the entry of NASD’s findings.
This case is the latest enforcement action brought by NASD in the area of cash account practices by firms that violate Regulation T. In March 2004, NASD brought a separate action against Ameritrade, Datek and iClearing for similar cash account practices that violated Regulation T. In that matter, NASD found that the firms permitted the trading in over 2 million transactions in over 30,000 customer cash accounts. NASD fined the firms $10 million for the violations.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.8 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.