Sept 27 The Financial Industry Regulatory
Authority is examining major brokerages about potential
conflicts of interest and financial incentives associated with
the sale of complex securities, the Wall Street regulator's
chief said on Thursday.
FINRA is looking "very closely" at how brokerages control,
analyze and supervise the effects of incentive compensation,
such as commission, that may motivate brokers to sell certain
complex securities, said Richard Ketchum, FINRA's chairman and
The regulator is also looking at conflicts and incentives at
broker-dealers that both develop and sell certain complex
products, Ketchum said during remarks at an industry conference
in New York.
The industry-funded watchdog has been clamping down on sales
practices related to a range of complex securities, including
leveraged and inverse exchange-traded funds. Many investors are
often drawn to the securities because of the promise of high
returns, but are not fully aware of the risks, Ketchum said.
Leveraged and inverse ETFs, for example, are designed to amplify
short-term returns by using debt and derivatives and are more
suitable for professional traders than for long-term retail
FINRA is also asking brokerages about their training
practices to ensure that brokers fully understand the features
and risks of complex securities before recommending them to
investors, Ketchum said.