FINRA Fines Apex Clearing $250,000 for Margin Account Supervision Failures

Apex Clearing Corporation has agreed to pay a $250,000 fine and accept a censure as part of a settlement with the Financial Industry Regulatory Authority (FINRA), the regulator said.

According to FINRA, from at least January 2020 through June 2022, Apex maintained margin accounts for retail customers introduced by other broker-dealers on a fully disclosed basis. During that period, more than 270,000 introduced retail customers held multiple margin accounts through their introducing firm, totaling approximately 712,000 margin accounts. About 61,000 of those customers carried margin balances in approximately 152,000 separate margin accounts. Approximately 18,000 customers with balances had three or more margin accounts, including 130 individuals with ten or more accounts.

FINRA found that Apex monitored each margin account individually and had not implemented reasonably designed procedures or systems to aggregate margin account positions or balances across a single customer’s multiple margin accounts introduced through the same introducing firm. Until January 2023, Apex considered each margin account of a single customer individually when monitoring that customer’s margin requirements, rather than combining all of the customer’s margin account positions.

The supervisory system, which focused on each account in isolation, impaired the firm’s ability to monitor and comply reasonably with its regulatory obligations, FINRA said. For example, in instances where a customer actively traded intraday across multiple margin accounts, Apex could not identify whether the customer’s transactions in the aggregate reached FINRA Rule 4210 limits in effect at that time. Additionally, where Apex identified and restricted activity in a single account, a restriction imposed on one margin account did not automatically carry over to a customer’s other margin accounts.

Following FINRA’s examination, in mid-2022 Apex began remediating by blocking customers from opening multiple margin accounts. By January 2023, Apex was tracking customers’ multiple margin accounts and implemented systems to aggregate their margin positions and transactions for margin purposes. Through subsequent enhancements, Apex also combined accounts and moved customers to a master-subaccount structure.

By failing to establish a supervisory system reasonably designed to achieve compliance with Regulation T and FINRA Rule 4210, Apex violated FINRA Rules 3110 and 2010, the regulator said.