Los Angeles-based broker-dealer Electronic Transaction Clearing has agreed to settle charges by the U.S. Securities and Exchange Commission (SEC) and pay a $80,000 penalty.
The SEC said in a release that the high-frequency clearing firm violated the Customer Protection Rule and illegally placed more than $25 million of customers’ securities at risk in order to fund its own operations.
Electronic Transaction Clearing Violates Customer Protection Violations
The SEC alleges that in 2015 Electronic Transaction Clearing transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds.
The regulator also states that Electronic Transaction Clearing used more than $17 million of securities belonging to two customers to borrow funds without consent, commingled customers’ securities and allowed a customer’s excess margin securities to be loaned out by the other clearing firm.
Broker-dealers are not allowed to use customers’ securities to fund their own operations.
ETC Previously Fined for Supervisory Failures
This isn’t the first time that the California company has faced regulatory fines. In March 2017 the Financial Industry Regulatory Authority filed a complaint against Electronic Transaction Clearing for supervisory failures. The complaint alleges that ETC failed to implement anti-money laundering policies and committed a number of other customer protection and supervisory violations.
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