Securities Law Blog

The Financial Industry Regulatory Authority (FINRA) announced today that it has imposed a $250,000 fine against J.P. Turner; Company, LLC of Atlanta, GA, for failing to have an adequate supervisory system designed to ensure that its registered representatives charged customers fair and reasonable commissions on stock trades.

As part of the settlement, FINRA ordered J.P. Turner to retain, at its own expense, an independent consultant to conduct a comprehensive review of the adequacy of the firm's policies, systems, procedures, and training relating to FINRA's Fair Pricing Rule. "In order to establish a fair commission or mark-up, brokers must take into consideration all of the relevant circumstances and not just whether the commission is below a certain percentage of the total price of the transaction," said Susan Merrill, FINRA Executive Vice President and Chief of Enforcement. "In this case, J.P. Turner allowed its brokers to charge commissions of up to 4.5% on almost every stock trade without regard to the circumstances, such as the size of the transaction, the cost of executing the order, or whether the securities were readily available in the market."

FINRA requires firms to implement a system and reasonable procedures to ensure that customers are fairly charged for transactions, taking into consideration all relevant factors. FINRA's mark-up policy lists seven factors for firms to consider: the type of security involved; the availability of the security in the market; the price of the security; the size of the transaction; disclosure to the customer; the pattern of the firm's mark-ups; and, the nature of the firm's business. FINRA found that between January 2002 and March 2005, J.P. Turner's supervisory system and written procedures failed to take these factors into account and failed to provide adequate guidance to its registered representatives to determine a fair commission or mark-up on equity securities transactions. FINRA found that under J.P. Turner's system and procedures, representatives had discretion to establish the commission on such transactions, limited only by whether the price of the security was above or below $25 per share. On all equity securities transactions in which the price of the security was below $25, registered representatives were allowed to charge up to 4.5%, while they could only charge up to 3.5% if the price of the security was above $25. During the review period, 91% of the firm's equity securities transactions involved securities priced below $25 per share.

J.P. Turner's trading manager was responsible for reviewing and approving trades for fair and reasonable charges. Those reviews, however, were limited to reviewing the transactions to ensure that the commissions charged did not exceed the firm's 3.5% and 4.5% guidelines.

For more information on this subject contact securities attorney's with Michaels, Ward & Rabinovitz, LLP.