The Financial Industry Regulatory Authority (FINRA), the U.S. broker-dealer watchdog, has announced that it has approved the approval of M1 Finance LLC, Open to the Public Investing, Inc.., SoFi Securities LLC and SogoTrade, Inc.The four companies imposed penalties totaling $2.6 million, including more than $1 million in compensation to retail customers who participated in a fully paid securities lending program and $1.6 million in fines for related regulatory and advertising violations by the companies.。

FINRA said: "Member companies offering fully paid securities lending schemes must be particularly cautious in regulating these schemes.。FINRA will continue to fulfill its mission to protect investors, enforce applicable rules, and work to ensure that customers who have been harmed are compensated, "said Bill St..

Full payment securities lending is the practice of a clearing company to borrow a customer's full payment or excess margin securities and lend them to a third party in exchange for a daily borrowing fee.。If the customer elects to join a fully paid lending plan, it is up to the clearing house to decide which securities to borrow, when to borrow, and on what terms to borrow。The daily borrowing fees charged by the clearing company are generally shared between the clearing company, the introducing broker-dealer and the client who owns the lending securities.。When borrowing shares on a dividend date, the customer receives not a dividend payment, but a payment in lieu of a dividend, which is usually taxed at a higher rate than a qualified dividend。

The four broker-dealers penalized by FINRA failed to establish, maintain and enforce regulatory regimes, including written regulatory procedures, that were reasonably designed to regulate their fully paid securities lending products.。While each company has agreed in its contracts with its clearing companies to determine which customers are suitable to participate in the full payment of securities lending, these companies have not established any customer participation criteria or taken any steps to determine the appropriateness of their customers before they participate in the full payment of securities lending.。Instead, these companies engage all new customers in fully paid securities lending when they open an account。The companies also provided disclosure documents to customers that contained false statements that customers would be compensated for lending securities, including in the form of "loan fees."。In fact, the customer did not receive any compensation.。

More than $1 million in compensation is compensation to customers whose securities were lent during the dividend date and therefore may suffer adverse tax consequences from participating in a fully paid securities lending program。

In addressing these issues, M1 Finance, Open to the Public Investing, Inc.SoFi Securities and SogoTrade agree with FINRA's findings but do not admit or deny the allegations.。

FINRA publishes disciplinary complaints, decisions and other information in its "Disciplinary Action Online" database and publishes in its "Monthly Disciplinary Action" page a summary of disciplinary actions against companies and individuals who violate FINRA rules, federal securities laws, rules and regulations, and Municipal Securities Rulemaking Commission rules.。