Pershing LLC must pay a $3 million civil fine for violating a rule that requires the firm to protect customers' funds and securities from broker-dealer misuse, among other things, Wall Street's industry funded watchdog said on Monday.
Pershing, a clearing firm unit of the Bank of New York Mellon Corp, violated the rule between 2010 and 2011 and also failed to have certain adequate supervision systems in place related to its obligations under the rule, the Financial Industry Regulatory Authority (FINRA) said. FINRA also censured Pershing for the violations, the regulator said.
Pershing neither admitted nor denied FINRA's allegations. A Pershing spokeswoman was not immediately available to comment.
Clearing firms such as Pershing act as intermediaries between securities brokerages and exchanges. They typically handle back-office tasks for brokerages, including order processing and record keeping. They also hold securities for brokerages, also known as providing custodial services.
The "customer protection rule" at issue in FINRA's action is a mandate of the U.S. Securities and Exchange Commission. It also requires that assets be available for distribution in the event of a brokerage's insolvency.
Pershing's violations of the rule included failing to have adequate reserves of cash or securities on hand to meet certain deposit requirements of its brokerage customers, FINRA said. The rule requires firms that have custody of customer securities to have a reserve of cash or securities on hand in a bank account that is at least equal in value to the net cash the broker owes to customers.
Pershing's deficiencies ranged from $4 million to $200 million, FINRA said. (Reporting by Suzanne Barlyn in New York; editing by Chizu Nomiyama and Matthew Lewis)
Updated 12:18 P.M. to add details of violations, other background.