SEC issues Alert on Sub-Account Risks

Friday, September 30, 2011 Print Email

The US Securities and Exchange Commission has issued a risk alert warning brokers of the dangers of accounts that allow clients direct access to markets.

The regulator announced on Thursday that it has "significant concerns" with the so-called master and sub-account arrangements.

Customers opening master accounts with a registered broker-dealer usually subdivide it for use by individual traders or groups of traders, the SEC said.

In some instances, the sub-accounts may be divided to such an extent that the master account customer and the firm where the account is held might not know the identity of traders in the sub-accounts.

Risks associated with the practice relate to money laundering, insider trading, market manipulation, account intrusions, unregistered broker-dealer activity and excessive leverage, it said.

"Although master/sub-account arrangements have legitimate business purposes, some customers may use them as vehicles for illegal activity, or in an attempt to avoid or minimise regulatory obligations and oversight," said Carlo di Florio, director of the SEC's office of compliance inspections and examinations.

"When a broker-dealer offers master/sub-accounts, this includes an obligation to reasonably design controls and procedures that address the types of risks that we identify in this report.

"Our national examination staff intends to scrutinize the controls and procedures at broker-dealers that offer market access to master/sub-account customers," di Florio added.

Source: GFS News

Login to ReadyRatios


Have you forgotten your password?

Are you a new user?

Login As
You can log in if you are registered at one of these services: