Ultralat Capital Markets, Inc., a brokerage firm headquartered in Miami, Florida, has been censured and fined $140,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm charged customers with excessive markups and failed to supervise business activities to prevent non-market foreign exchange rates from being utilized or markups from being excessively charged in customer accounts. Letter of Acceptance, Waiver and Consent, No. 2013035313903 (Mar. 3, 2017).
According to the AWC, from March of 2012 to September of 2013, the firm failed to disclose to customers that the foreign exchange rates which were utilized in customers’ bond swap transactions had actually been inconsistent with actual spot market rates. Particularly, customers effected transactions which included bonds denominated in Brazilian Real, a foreign currency. The AWC stated that the president of the firm along with a senior trader made adjustments to foreign exchange rates on the purchase and sale side of transactions involving a bond swap via the manual input of a foreign exchange rate into the firm’s trading system.
Apparently, these non-manual rates caused customers to incur inaccurate losses or gains. Evidently, customers were not informed of the non-market rates, and were unaware of how they would affect the values of customers’ transactions. FINRA found that the firm’s conduct in this regard was violative of FINRA Rule 2010 and Securities Act of 1933 Section 17(a)(2).
Additionally, the AWC stated customers on three occasions were excessively charged markups on bonds purchased in connection with the transactions involving bond swaps. Evidently, customers paid markups ranging from nearly seven percent to over sixteen percent in connection with the use of non-market foreign exchange rates by the firm. As a result, the firm’s conduct was found to be violative of FINRA Rule 2010, NASD Conduct Rule 2440, and IM-2440-1.
Moreover, the firm was cited by FINRA as failing to have created and sustained reasonable supervision systems and written supervisory procedures to ensure compliance with FINRA and NASD Rules, as well as securities regulations and laws. Particularly, the supervisory systems used by the firm were incapable of determining the reasonableness of non-market foreign exchange rates as compared to the market rates, and did not identify that the trader and president of the firm utilized the rates. Ultimately, the supervision systems did not accurately state the customers’ markups in transactions concerning bond swaps, which prevented the firm from ascertaining the reasonableness and fairness of markups charged to customers. As a result, the firm’s conduct in this regard was violative of FINRA Rule 2010 and NASD Conduct Rule 3010(a) and 3010(b).
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