(FINRA Case #2013035313903)
Ultralat Capital Markets, Inc. (CRD #136791, Miami, Florida) submitted an AWC (Accept, Waiver & Consent) in which the firm was censured; fined $140,000; required to pay disgorgement of excessive markups in the amount of $48,055.84, plus interest; and required to, submit a written certification indicating that the firm has reviewed and revised its WSPs (Written Supervisory Procedures) regarding non-market foreign exchange (FX) rates and markups to achieve compliance with FINRA rules.
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that the firm, acting through various individuals including but not limited to its former president and head trader, used non-market FX rates in certain bond swap transactions for retail customers, without disclosing to those customers that the trades were executed with FX rates away from the current market rate.
The findings stated that most of the customers were referred to the firm by its owner, a member of the Colombia Stock Exchange. Customers engaged in bond swap transactions involving foreign currency denominated bonds, particularly bonds denominated in the Brazilian Real (BRL). After the referred customers placed the orders with the firm’s owner, the firm’s former president and head trader and others, in consultation with employees of the firm’s owner, adjusted the FX rate for each buy and sell in the bond swap by manually inputting into the firm’s trade execution system a FX rate for the transactions that was a non-market rate away from the current spot rate. As a result, the firm typically overpaid the customers in these transactions for the bonds they sold, reducing any realized losses in their accounts. On the purchase side of the bond swap, the firm offset the overpayment by using a non-market FX rate to sell the bonds to the customers.
The findings also stated that the firm did not disclose to the referred customers involved in these transactions that it used non-market FX rates away from the spot rate to value customer bond transactions or disclose its impact on the valuation of the transactions to the referred customers. The findings also included that in three instances, the net effect of the bond swap transactions resulted in the referred customers being charged excessive markups on the bonds they purchased, which generated excessive charges totaling $48,055.84.
FINRA found that the firm failed to establish, maintain, and enforce a supervisory system and WSPs (Written Supervisory Procedures) that were reasonably designed to achieve compliance with all applicable securities laws and regulations, including supervision of FX rates used on transactions in foreign currency denominated bonds and of markups. The firm’s supervisory systems did not verify that the FX rates used on customer transactions were reasonable in relation to the prevailing spot market rate. As a result, the firm’s supervisory system did not detect its former president and head trader’s and others’ use of FX rates that were away from the market. The firm’s supervisory systems also showed a markup for foreign currency denominated bonds based on the bond price in U.S. dollars, and not the total proceeds of the trade when factoring in the FX rate. As a result, the firm’s system did not reflect the full markup charged to the customers in the bond swap transactions. The firm’s supervisory system therefore was not able to fully detect whether it’s trading desk executed customer transactions in foreign currency denominated bonds with a fair and reasonable markup.
If you feel you have been misled by Ultralat Capital Markets, Inc., it’s representaives or any Broker and wish to discuss legal action, please contact Darren Blum at 1-877-786-2552 (1-877-STOCK LAW) www.stockattorneys.com for a free consultation.