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Resolutions of CMIC in Three Cases Affirmed by Sec En Banc
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Resolutions of CMIC in Three Cases Affirmed by Sec En Banc

18 October 2019

The Securities and Exchange Commission (“SEC” or “Commission”) en banc issued its decisions on three memoranda on appeal separately filed by various trading participants against the resolutions of the Capital Markets Integrity Corporation (“CMIC”).

In the first decision issued on 30 July 2019, the SEC en banc affirmed CMIC’s resolutions, declaring that a trader or salesman should use and maintain only one (1) personal dealing account, in accordance with Article 4(c) of the CMIC Rules, and that the opening of additional accounts, particularly, in-trust or ITF accounts in behalf of a trader’s minor children, constitutes a violation of the cited rule. The Commission en banc ruled that the trader involved in the case, as trustee, had both voting rights and investment returns power, and there was nothing that prevented the trader from liquidating the shares in the subject accounts. Thus, the SEC en banc concluded that the trader, by opening additional accounts that the latter would ultimately manage, had clearly circumvented the rule.

In the second decision dated 26 September 2019, the SEC en banc upheld CMIC’s resolutions, which had found a trading participant to be in violation of the know-your-customer or KYC rules. In this case, the trading participant’s client managed to transact shares of considerable value, notwithstanding the declaration in the customer account information form (“CAIF”) that the client had nominal net and annual incomes. The SEC en banc, in affirming the penalty imposed by CMIC on the trading participant, asserted that neither the client nor the trading participant had taken steps to update the CAIF, which is a key component of KYC regulation.

Finally, in another decision issued on 26 September 2019, the SEC en banc sustained CMIC’s findings that the salesman of one trading participant had violated the Ethical Standards Rule with regard to a private placement with clients of the firm. The Commission en banc, however, also imposed a penalty on the trading participant for failing to observe the necessary diligence in its supervision of the trader, and ordered the conduct of further investigation to determine whether there are other violations of the securities laws.

The pertinent decisions of the SEC en banc are published on the Commission’s website.