FINRA fines Apex Clearing for securities lending programme violations
06 February 2025 US
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The Financial Industry Regulatory Authority (FINRA) has fined Apex Clearing Corporation US$3.2 million for violations related to its fully paid securities lending programme.
This is the first time FINRA has charged a firm with violating FINRA Rule 4330.
The rule requires member firms that borrow customers’ securities to have reasonable grounds to believe the loans are appropriate for the customers, and to provide customers with specific notices and disclosures in writing.
Apex failed on all counts, according to FINRA. Between January 2019 and June 2023, the firm lacked reasonable grounds to think the programme was appropriate for participating customers who did not receive a loan fee.
In addition, Apex distributed documents containing misrepresentations about the compensation that investors would receive for loans under the fully paid securities lending programme.
Apex’s introducing broker-dealers sent these documents to more than 5 million retail investors during this period, according to FINRA.
From March 2021 to April 2023, the firm failed to provide many customers (enrolled in its fully paid securities lending programme) with all written disclosures regarding the customers’ rights and the risks associated with the customers’ loans of securities.
Apex also violated FINRA Rules 2210 (Communications with the Public), 3110 (Supervision), and 2010 (Standards of Commercial Honor and Principles of Trade).
Finally, since at least January 2019, Apex has failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, for its programme designed to achieve compliance with FINRA Rule 4330.
Apex operated a fully paid securities lending programme for introducing firms, which in turn offered their customers the opportunity to participate.
FINRA previously ordered four introducing firms whose customers participated in Apex’s programme to pay a combined US$2.6 million, including more than US$1 million in restitution to harmed customers, for supervisory and advertising violations related to the programme.
However, according to FINRA’s examination of firms offering fully paid securities lending to retail customers, Apex entered into lending agreements with customers and borrowed customer securities.
Bill St. Louis, executive vice president and head of enforcement at FINRA, says: “Member firms must have reasonable grounds to believe that a fully paid securities lending programme is appropriate for customers who participate. It is unreasonable to expect a customer to take on risks and the potential financial consequences of securities lending with no financial upside.
“In addition to obtaining restitution for harmed investors from the introducing firms, we must hold accountable the clearing firm that designed, facilitated, and benefitted from this programme.”
This is the first time FINRA has charged a firm with violating FINRA Rule 4330.
The rule requires member firms that borrow customers’ securities to have reasonable grounds to believe the loans are appropriate for the customers, and to provide customers with specific notices and disclosures in writing.
Apex failed on all counts, according to FINRA. Between January 2019 and June 2023, the firm lacked reasonable grounds to think the programme was appropriate for participating customers who did not receive a loan fee.
In addition, Apex distributed documents containing misrepresentations about the compensation that investors would receive for loans under the fully paid securities lending programme.
Apex’s introducing broker-dealers sent these documents to more than 5 million retail investors during this period, according to FINRA.
From March 2021 to April 2023, the firm failed to provide many customers (enrolled in its fully paid securities lending programme) with all written disclosures regarding the customers’ rights and the risks associated with the customers’ loans of securities.
Apex also violated FINRA Rules 2210 (Communications with the Public), 3110 (Supervision), and 2010 (Standards of Commercial Honor and Principles of Trade).
Finally, since at least January 2019, Apex has failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, for its programme designed to achieve compliance with FINRA Rule 4330.
Apex operated a fully paid securities lending programme for introducing firms, which in turn offered their customers the opportunity to participate.
FINRA previously ordered four introducing firms whose customers participated in Apex’s programme to pay a combined US$2.6 million, including more than US$1 million in restitution to harmed customers, for supervisory and advertising violations related to the programme.
However, according to FINRA’s examination of firms offering fully paid securities lending to retail customers, Apex entered into lending agreements with customers and borrowed customer securities.
Bill St. Louis, executive vice president and head of enforcement at FINRA, says: “Member firms must have reasonable grounds to believe that a fully paid securities lending programme is appropriate for customers who participate. It is unreasonable to expect a customer to take on risks and the potential financial consequences of securities lending with no financial upside.
“In addition to obtaining restitution for harmed investors from the introducing firms, we must hold accountable the clearing firm that designed, facilitated, and benefitted from this programme.”
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