Jefferies hit with $4m fine for ADR mishandling
10 December 2019 New York
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US broker-dealer Jefferies is the latest market participant to fall foul of securities lending rules related to pre-released American Depositary Receipts (ADRs). ADRs allow US investors to access shares foreign companies without having to make purchases in the foreign markets, while also allowing foreign companies to get increased exposure to US markets. This week, the US Securities and Exchange Commission (SEC) handed the New York-based firm a $3.9 million fine related to unlawful practices by its securities lending desk from 2012 to 2014. The SEC argued that Jefferies wrongly borrowed ADRs from other brokers when its securities lending personnel should have known that they were potentially receiving ADRs from pre-release brokers that would not be complying with the pre-release obligations. Without admitting or denying the SEC’s findings, Jefferies agreed to pay more than $2.2 million in ill-gotten gains and pay more than $468,000 in prejudgment interest and a $1.25 million penalty for a total fine of just under $4 million. Jefferies’ settlement represents the 14th enforcement action against a bank or broker by the SEC as part of its investigation into abusive ADR pre-release practices, which has thus far resulted in monetary settlements exceeding $431 million. Most recently, in August, the SEC fined financial services provider Cantor Fitzgerald and broker BMO Capital for failing to reasonably supervise their securities lending desk personnel in relation to ADR mishandling during a similar period to Jefferies. Cantor Fitzgerald had to pay more than $647,000, while BMO Capital Markets Corporation faced a $3.9 million fine for improper handling of pre-released ADRs. The SEC\'s campaign against ADR mishandling between 2011 and 2015 began in earnest in 2017 with an investigation into ITG, a broker that had to pay $24.4 million for violating federal securities laws related to ADRs. Later that year, Banca IMI Securities Corp, an indirect, wholly-owned US subsidiary of Italian bank Intesa Sanpaolo SpA, was slapped with a $35 million penalty for similar violations. Since then the SEC has handed fines for ADR violations to J.P. Morgan, Citibank, Deutsche Bank and SG Americas in 2018, and Industrial and Commercial Bank of China, Merrill Lynch and Wedbush in 2019, along with BMO and Cantor.
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US SEC to review exemption rules for affiliated securities lending programmes
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