From April 2007 until July 2015, the company understated the portfolio margin requirements for 22 accounts at various points in time.
ABN AMRO Clearing Chicago LLC, a provider of clearing services for institutional customers, including broker-dealers and proprietary trading customers, has agreed to pay a fine of $150,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA). The settlement relates to AACC’s violations of NASD Rules 2520(g) and 2110 and FINRA Rules 4210(g) and 2010.
According to FINRA, from April 2007 until July 2015, AACC understated the portfolio margin requirements for 22 accounts at various points in time. The company incorrectly treated certain over-the-counter equity securities, which are not margin eligible, as marginable securities.
During a routine exam, the Authority found that AACC was calculating portfolio margin requirements incorrectly. The firm was including non-margin equity securities as margin eligible for certain customer accounts. In particular, the firm incorrectly applied a 15% margin requirement to equities that were not margin eligible, instead of the 100% required amount. As a result, the firm failed to require adequate equity to support the margin borrowing in these accounts.
The non-margin eligible securities at issue were traded OTC and not on a domestic exchange, consisting principally of American Depositary Receipts of foreign equities. The firm erroneously categorized the OTC traded equities at issue as margin eligible because of an incorrect definition of margin eligible securities used by the firm. After the problem was identified by FINRA, the firm corrected the issue.
FINRA found that during the relevant period, the firm understated margin requirements at various points of time for 22 accounts. The aggregate understatements in the firm’s portfolio margin accounts on the sampled dates ranged from approximately $1.27 million to more than $101 million.
Generally, these understatements did not lead to margin deficiencies because the accounts at issue had sufficient margin on deposit in the form of securities and other assets in excess of the recalculated requirement. The understatements did not cause the firm to have a net capital deficiency.
The company agreed to a fine of $150,000 and a censure.