June 06, 2014 – The Securities and Exchange Commission has begun an administrative proceeding against Wedbush Securities related to its “market access rule” which became effective in 2011. Wedbush Securities respectfully disagrees with the assertion in the SEC’s administrative complaint that the firm’s controls and procedures in this area were inadequate.
The firm believes that its risk management controls and procedures in this area were reasonably designed to achieve compliance with applicable regulatory requirements, and that they were consistent with the rules and guidance given by the SEC and its staff beginning in 2011. As this case demonstrates, the SEC’s market access rule continues to evolve. In fact, SEC guidance titled “Responses to Frequently Asked Questions Concerning Risk Management Controls for Brokers or Dealers with Market Access” was not issued until April 15, 2014. The firm continues to monitor changes to the rule and actively modifies procedures as appropriate.
In 2011, Wedbush Securities discussed its processes and controls with SEC staff before the market access rule became effective and promptly implemented the SEC staff’s recommendations at the time. The firm proactively contributed to the process through a constructive comment letter to the SEC in March 2010. In several respects, however, the SEC now seeks to impose additional regulatory requirements retroactively, through enforcement proceedings, without giving fair notice of its expectations in advance. Wedbush Securities believes this approach is unfair and fails to serve the goals of securities regulation.
This dispute arises from trading activity by certain former correspondent firms and clients that held market access accounts through Wedbush Securities’ Advanced Clearing Services business in 2011 and until the beginning of 2013. Wedbush Securities terminated the accounts at issue more than a year ago. The trading activity at issue did not result in any losses to any other market participants, to our knowledge, or to Wedbush Securities. Moreover, there has been no claim that the third-party trading activity at issue had an improper effect upon the securities markets.
Wedbush Securities stands behind its compliance and risk management record in its sponsored and direct market access business. The firm has a strong record of supporting clear and effective regulation in this area. Wedbush paid approximately $16 million in transaction fees to the exchanges that support such regulation, and the SEC benefitted from the fees related to the business at issue.
In its 59-year history, Wedbush Securities has never previously been the subject of an SEC enforcement action, settled or otherwise. We are disappointed that the SEC has decided to bring charges against the firm and individuals in this instance, and look forward to a prompt and fair resolution of the matter.
This proceeding is wholly unrelated to the firm’s Capital Markets and Private Client groups and has no bearing on client financial safety. Wedbush Securities remains focused on providing innovative technologies and risk management tools and solutions to its clients.
Founded in 1955, Wedbush Securities is a leading financial firm that provides brokerage, clearing, investment banking, equity research, public finance, fixed income sales and trading, and asset management to individual, institutional and issuing clients. Headquartered in Los Angeles, with over 100 registered offices, the firm focuses on relentless service, client financial safety, continuity, and advanced technology. Wedbush Securities is the largest subsidiary of holding company WEDBUSH, Inc., which also includes affiliated firms Wedbush Capital Partners, Wedbush Opportunity Partners, Wedbush Asset Management and Lime Brokerage LLC. Follow us on Twitter @Wedbush.