Wednesday, June 29, 2011

Trouble with FINRA

If you click the title of this post, first of all, remember to hit the back arrow; otherwise, you're gone. Secondly, know that this is all public information. The New Jersey Bureau of Securities--what the test calls the Administrator--operates in a very public fashion. If you get in trouble, they publish your name, address, and registration number. And they tell the world what you did and why that was, like, not allowed. For example, the respondent whom we find first on the list, under "Aaron, Shawn E." got in trouble with FINRA (formerly NASD) for, apparently, threatening and intimidating an issuer of common stock, telling them they'd better listen up, or he could drive down the market price of their stock based on his large holdings. Well, like a lot of guys, he overstated the size of his holdings, but that's not what got him in trouble with NASD. It was the whole threatening/extortion thing that really ticked them off. Notice how NASD (now FINRA) suspended him for two years--meaning he might be able to get back in after requalifying by exam and probably finding a firm willing to do heightened supervision for a while, assuming anyone wants to hire him. Also notice that NASD/FINRA notify the state Administrator when somebody gets in trouble with them. And, that the state has a whole separate hearing to determine if the license should be--in this case--revoked.


  1. Hi Robert. I have a question, unrelated to this post, and was hoping you could help me out?

    From your book:
    Which of the following bond features typically allow the issuer to lower the nominal interest rate?
    a. convertible
    b. callable
    c. long term maturity
    d. lack of a sinking fund
    I picked b (answer is a). My interpretation of the question was: if an issuer sells debt NOW, and wants the ability ("allow") to lower the nominal rate LATER, which feature will give them that ability?

    If the outstanding debts are callable bonds, then they can call it and reissue new bonds at a lower interest rate if the climate changes. Based on this logic, I still think callable is a better answer than convertible (I do get that convertible bonds offer investors reduced risk and room for appreciation ergo they get less compensation in the form of interest). I am assuming I am missing a major point here (which is probably how I failed the test the first time!).

    PS: I'm enjoying your book a lot thus far. I haven't fallen asleep once while reading it, which is more than I could say about the STC materials!

  2. Hi, Gretchen. The issuer can't change the nominal rate on bonds already issued. The bonds that are callable had to offer a higher yield to those investor vs. non-callable, right? Think of it this way--callable benefits issuer; convertible might benefit the bondholder.