Galvin: Fidelity failed to investigate applicants for options and margin trading
According to a new complaint filed by the office of Commonwealth Secretary William Galvin, Fidelity Brokerage Services (FBS) failed to properly investigate Massachusetts retail investors who applied to be approved for options and margin trading.
B/D’s casual attitude led to instances where applicants exaggerated their experience and employment information, although FBS was privy to information that disputed these claims. In a statement regarding the complaint, Galvin said that companies cannot “rubber-stamp” options trading applications without due diligence.
“With the recent rise in online options trading among many young retail investors, as well as the rise of online and mobile applications, brokers/dealers need to ensure that they still maintain the same standard of care and attention. We are making sure these investors are qualified,” he said.
Specifically, the administrative complaint accused FBS of “engaging in face-to-face immoral and dishonest conduct” by failing to properly review applications. The complaint states that many, including failing to review customer information on file, train its Central Review Team (CRT) staff and see that its own policies meet Massachusetts securities law standards. In some ways, fidelity was reduced.
According to the complaint, FBS had a provision that required reviewers to be aware that a customer could re-apply for approval by providing information about his or her financial or work experience, so claims made in new applications could be made by the same applicant. Should be checked against any previous ones filed for discrepancies. , But FBS reportedly failed to implement the provision, and instead had an “assembly line approach” to review approval applications, making it easier for customers to submit multiple applications and outsource them.
According to Galvin, between mid-March 2020 and June 2021, CRT employees missed several discrepancies in applications. In some cases, applicants claimed that they had gained years of experience in a matter of days, or that their annual income increased in less than a day after a prior application was rejected. In one instance, an applicant claimed that he was promoted from ‘scientist’ to ‘CEO’ less than a day after his previous application was rejected, while another applicant said that his profession It was ‘job’.
“Despite having access to every prior option and margin application submitted by a retail broker client, CRT members never look beyond an application before them,” the complaint said.
Between March 2020 and December last year, Fidelity approved over 27,300 option applications. In one instance, a determined customer submitted 13 applications in a month.
The complaint argued that FBS, by behaving as it did, risked exposing “inexperienced retail brokerage clients” to risky options and margin trading. After the Securities Division launched its investigation, FBS reportedly instituted a new policy that prohibited an applicant from submitting an electronic application if they had already submitted two applications in the previous 60 days.
“However, this does not necessarily mean that the electronic option precludes back-to-back submission of applications,” the complaint read. “FBS still does not limit the number of times a retail brokerage account can submit paper option applications, nor does it limit the number of times a retail brokerage client can submit margin applications of any kind.”
According to a Fidelity spokesperson, b/d has cooperated “fully” with the Securities Division.
“FBS has a long-standing commitment to providing excellent customer service, operating with integrity, and adhering to industry standards and regulations,” it said. “We disagree with the characteristics of FBS contained in the complaint, believe we have effective due diligence procedures in place, and look forward to addressing and resolving this matter through the administrative process.”
The complaint was announced a day later Galvin Details a Sweep Their office is working with some broker/dealers about their disclosure to small-dollar clients investing in certain target-date mutual funds. galvin Seeking re-election as Secretary of State, a position he has held since 1994.
