|Tuesday, June 30, 2009
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464
Washington, D.C. — Financial Industry Regulatory Authority (FINRA) announced today that it has fined ICAP Corporates LLC, of Jersey City, $2.8 million and sanctioned a former broker for numerous improper communications with other interdealer brokerage firms about customers' proposed brokerage rate reductions in the wholesale credit default swap (CDS) market.
FINRA's investigation into misconduct by the other interdealer brokerage firms and individuals involved is continuing.
Jennifer Joan James, a former ICAP broker and manager of ICAP's CDS desk, was fined $350,000 and suspended from working in the securities industry in all capacities for six months for attempting to improperly influence other interdealer brokerage firms and their employees. ICAP was fined $1.8 million for its supervisory failures — specifically, failing to detect and prevent improper inter-firm communications — and $1 million for engaging in conduct through its CDS desk manager that was designed to improperly influence other firms and their employees.
"We continue to pursue conduct which undermines fundamental principles and rules upon which customers and free markets rely for efficient price discovery of brokerage rates," said Tom Gira, Executive Vice President of FINRA's Department of Market Regulation. "FINRA's requirements to observe high standards of commercial honor and just and equitable principles of trade are designed to prevent the types of inter-firm communications that occurred in this case, which threaten the proper interaction of market forces regarding the pricing of brokerage rates."
CDS instruments generally enable counterparties to purchase and sell "risk protection" associated with certain credit events (such as bankruptcies, defaults or credit downgrades in underlying instruments). The risk protection purchaser generally pays a periodic fee to the seller, and the seller agrees to pay the purchaser an agreed-upon amount should one of those credit events occur. Interdealer brokerage firms provide an intermediary brokerage service to commercial and investment banks in the wholesale markets to identify and match counterparties for such CDS transactions. The firm receives brokerage fees for successfully introducing buying and selling counterparties (its brokerage customers) but is not a party to the CDS transactions themselves.
FINRA found that James engaged in repeated improper communications with personnel at other interdealer brokerage firms that improperly attempted to influence those firms and individuals. These communications generally occurred after individual customer firms sought to renegotiate their CDS brokerage fees, sending schedules of proposed rate reductions separately to a number of individual interdealer brokers. James's communications with personnel at other interdealer brokers included reactions to customers' proposed rate reductions, statements concerning actual or contemplated interdealer broker responses or counter-positions to the customers' proposed rate reductions, and discussions about the interdealer brokers creating identical or similar, individual counter proposals to rate reduction requests.
FINRA also found that while James's communications typically involved one-to-one discussions with personnel from one other CDS interdealer brokerage firm, the communications frequently referred to similar discussions about the proposed fee-reduction schedules with additional interdealer brokerage firms.
ICAP and James settled these matters without admitting or denying the allegations, but consented to the entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2008, members of the public used this service to conduct 11.6 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and firms.
For more information, please visit our Web site at www.finra.org.