The Financial Industry Regulatory Authority has fined brokerage Rafferty Capital Markets more than $400,000 for failing to prevent its hedge fund clients from late trading and market timing mutual funds between January 2001 and August 2003. The fine is $350,000, along with $59,605 that Rafferty must repay to two mutual fund families. In addition, FINRA said, Rafferty helped the hedge fund clients escape detection by opening multiple customer accounts and different brokerage branch codes.
Besides being prevented from opening new mutual fund brokerage accounts for new or existing clients for 90 days, Rafferty must review its compliance and operations procedure to prevent any other occurrences of late trading or market timing. The firm must also retain electronic communications and record the times of receipt and entry of mutual fund orders.
“Funds must implement systems to ensure that mutual fund orders processed after the market close reflect orders received from customers during regular trading hours,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement. “Otherwise, they can gain an unfair advantage.”