SEC Fines LA-Based Electronic Transaction Clearing $80,000, Issues Cease-And-Desist Order for Margin Securities Failures

The Securities and Exchange Commission initiated cease-and-desist proceeding against Electronic Transaction Clearing, LLC of Los Angeles, finding that the firm moved tens of millions of dollars in fully paid and excess margin securities to an outside clearing firm's account, thus failing to maintain its excess margin securities requirement, and without obtaining customer consent, in violation of the SEC's Customer Protection Rule.

The Customer Protection Rule requires firms to maintain physical possession or control of fully paid and excess margin securities in order to avoid a delay in returning securities or a shortfall where the customer is not made whole, in the event of broker-dealer failure.

For example, the SEC in January 2018 fined JP Morgan $2.8 million for failing to satisfy this same Customer Protection Rule and causing deficits in excess of $100 million.

Electronic Transaction Clearing is a subsidiary of ETC Global Holdings, Inc and has 25 disclosures in its FINRA BrokerCheck report, most recently a failure-to-meet-requirements disclosure filed by Bats BYX Exchange, Inc., and resolved on March 8, 2018 in the form of a censure, order to resolve written supervisory procedures, and $40,000 fine.

SEC Order #3-18406

The order states that in failing to maintain possession or control over the customer securities it moved to the outside clearing firm, ETC subjected its customers to liens and other liabilities.

The SEC also found that the fully paid securities were commingled with other customers' securities, and that the firm failed to obtain permission from or notify its customers that their fully paid securities were being used as collateral or that a lien would be placed on their securities.

For instance, investigators determined that on one particular occasion, an error caused approximately $17.7 million-worth of excess margin securities to be subject to the outside clearing firm's lien, and that ETC failed to report this failure in monthly and quarterly reports, thus willfully violating SEC rules.

If you have invested with Electronic Transaction Clearing (ETC) of Los Angeles or with any firm whose failure to maintain physical possession or control of your securities has led to a shortfall or delay in returning your securities that produced losses or other damages, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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