Axos Clearing LLC a securities brokerage firm headquartered in Omaha Nebraska has been censured and fined $250,000.00 by Financial Industry Regulatory Authority (FINRA) founded on findings that the firm failed to make disclosures to customers regarding margin interest charges which prevented customers from both ascertaining the terms and conditions relating to their margin accounts and being able to compare the firms’ charges with other securities broker dealers. Letter of Acceptance Waiver and Consent No. 2018058344301 (June 26, 2019).
According to the AWC, during the time that twenty thousand margin accounts had been established by Axos Clearing LLC, there was no information provided to customers by the firm concerning the base charge on customers’ margin accounts. Apparently, there was also no explanation of how this base rate was calculated. Instead, the firm merely conveyed to customers that the broker would select the rate pursuant to an interest rate schedule, where the broker’s rate would be added to the base rate for purposes of determining the interest rate.
Apparently, the margin agreement that Axos had in effect with customers lacked any transparency as to the actual base rate or how the base rate compared to current market rates. The AWC additionally stated that the firm failed to provide customers any assurances that the base rate was actually applied, and had failed to reference the mark-up applied by the broker.
Evidently, the written supervisory procedures and supervision systems utilized by Axos were not adequately engineered to guarantee that customers were informed about the charges or interest assessed in their margin accounts. Apparently, the firm’s procedures were not capable of complying with SEC Rule 10b-16(a)(1) which called for information about charges and interest to be disclosed at the time that the customer’s accounts were established. Further, there were no written supervisory procedures used by the firm mandating the firm’s disclosure of current rates. Consequently, FINRA found Axos’ conduct violative of FINRA Rules 2010, 3110(a), 3110(b) and NASD Rules 3010(a) and 3010(b).
