Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, June 24, 2010

FINRA Fines Brokers $4.3 Million for Improper Communications about Customers' Interdealer Brokerage Negotiations

FINRA announced today that it has imposed fines totaling $4.3 million against Phoenix Derivatives Group, LLC of New York and eight brokers – three employed at Phoenix and five at four other interdealer brokerage firms – for improper communications about customers' proposed brokerage rate reductions in the wholesale credit default swap (CDS) market.  Phoenix and its three CDS desk co-heads were sanctioned for attempting to improperly influence other interdealer brokerage firms and their employees regarding brokerage fees and rate reductions.  

Phoenix was fined $3 million, of which $900,000 is a joint and several fine apportioned among the three CDS desk co-heads – former Managing Partner Jon Lines and Managing Partners Wesley Wang and Marcos Brodsky. FINRA suspended all three from working in the securities industry – Lines for three months, Wang for two months and Brodsky for one month.  In addition to Phoenix and its desk co-heads, five brokers at other interdealer firms in the CDS market were fined a total of $1.3 million and issued suspensions as part of FINRA's ongoing review:

FINRA found that the eight brokers engaged in communications with personnel at other interdealer brokerage firms that improperly attempted to influence those firms and individuals. These communications generally occurred after individual customer firms sought to renegotiate their CDS brokerage fees, sending schedules of proposed rate reductions separately to a number of individual interdealer brokers. The communications that the eight brokers engaged in with personnel at other interdealer brokers included reactions to customers' proposed rate reductions and statements concerning actual or contemplated interdealer broker responses or counter-positions to the customers' proposed rate reductions. Certain brokers' communications with other interdealer brokers also included discussions about creating identical, or similar, individual counter-proposals to rate reduction requests.  FINRA also found that while many of the brokers' communications typically involved one-to-one discussions with personnel from other CDS interdealer brokerage firms, certain of those discussions also referred to similar communications about the proposed fee-reduction schedules with additional interdealer brokerage firms.

 Phoenix and the eight individuals settled these matters without admitting or denying the allegations, but consented to the entry of FINRA's findings.

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