TD Ameritrade and SEC Laws and FINRA RULES
The obligation to maintain operational capability is not new. The securities laws have always required firms to handle customer transactions properly, whether manually or electronically. It is a violation of the antifraud provisions of the securities laws for a broker-dealer to accept orders without having sufficient personnel and facilities to properly execute securities transactions. See, Securities Exchange Act Release No. 8363 (July 29, 1968), 33 FR 11150.http://www.sec.gov/news/studies/online.htm#P127_24126
Firms should also use every reasonable effort to notify customers of operational difficulties. In addition, to assist in monitoring and planning for systems disruptions, firms should consider maintaining records of capacity evaluations and system slowdowns and outages, including details on the cause and impact of the problem.http://www.sec.gov/news/studies/online.htm#P127_24125
The “antifraud” provisions prohibit misstatements or misleading omissions of material facts, and fraudulent or manipulative acts and practices, in connection with the purchase or sale of securities. Broker-dealers owe their customers a duty of fair dealing. This fundamental duty derives from the Act’s antifraud provisions mentioned above. Under the so-called “shingle” theory, by virtue of engaging in the brokerage profession (e.g., hanging out the broker-dealer’s business sign, or “shingle”), a broker-dealer represents to its customers that it will deal fairly with them, consistent with the standards of the profession. Based on this important representation, the SEC, through interpretive statements and enforcement actions, and the courts, through case law, have set forth over time certain duties for broker-dealers. These include the duties to execute orders promptly, disclose certain material information (i.e., information the customer would consider important as an investor), charge prices reasonably related to the prevailing market, and fully disclose any conflict of interest. http://www.sec.gov/divisions/marketreg/bdguide.htm
Duty to Disclose Material Information –SEC Rule 10b-5 is one of the most important rules promulgated by the U.S. Securities and Exchange Commission, pursuant to its authority granted under the Securities Exchange Act of 1934. The rule prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security
Duty of Best Execution – Broker Dealers have a duty of Best Execution. A Broker Dealer cannot honor their duty of Best Execution if the quotes being displayed on your screen are wrong . A traders order will never get filled at the best bid or ask price because they are looking at the wrong quoteshttp://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p003889.pdf
Order protection rule – Rule 611, otherwise known as the Order Protection Rule, aims to ensure that both institutional and retail investors get the best possible price for a given trade by comparing quotes on multiple exchanges. If a better price is quoted elsewhere, the trade must be routed there for execution, and not “traded through” at its current exchange.
Duty to supervise A broker-dealer’s “duty to supervise” is a key aspect of the federal securities regulatory scheme. Under SRO rules, broker-dealers have an obligation to establish a system of supervision reasonably designed to ensure that their employees’ conduct complies with the federal securities laws and SRO rules. There is no single supervisory or compliance system appropriate for all broker-dealers. The rules of the various SROs, as well as the Securities Exchange Act of 1934 (“Exchange Act”), anticipate that each firm will develop its own system of supervision to promote effective compliance with the federal laws and SRO rules based on the nature of the firm’s business. http://www.sec.gov/news/testimony/052302tslar.htm
Section 29(b) of the Securities Exchange Act permits a party to a contract to seek its rescission if performance of the contract “involves the violation of or the continuance of any relationship or practice in violation of,” any provision of the Securities Exchange Act of 1934. Federal law – 15 USC §78cc(a) (“Any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.”)
FINRA Prohibited Conduct: Failing to use reasonable diligence to see that a customer’s order is executed at the best possible price, given prevailing market conditions. http://www.finra.org/Investors/ProtectYourself/BeforeYouInvest/ProhibitedConduct/index.htm
FINRA Rules of Fair Practice impose the following standard upon brokers: “A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade. ” This standard, along with other FINRA rules, is legally enforceable and is the standard on which investors are supposed to depend.
In conjunction with its approval of the Linkage Plan, the Commission proposed a new rule, Exchange Act Rule 11Ac1-7 (“Trade-Through Disclosure Rule”),6 to require a broker-dealer to disclose to its customer when the customer’s order for a listed option is executed at a price inferior to a better published quote and that better quote, unless the transaction was effected on a market that participates in an intermarket linkage plan approved by the Commission.7 In addition, the Commission proposed to amend Exchange Act Rule 11Ac1-1 (“Quote Rule”)8 to require options exchanges and options market makers to publish firm quotes.9 These proposed rules were intended to facilitate the ability of market participants to obtain the best price for customer orders without mandating a specific linkage.
With the current expansion of multiple trading in options, the Commission is increasingly concerned about intermarket trade-throughs of customer orders. The Commission believes that adoption of the new rule and amendment to the Quote Rule are necessary at this time to encourage the removal of barriers to access to, and the use of efficient vehicles to reach, better prices on another market. Consequently, as discussed below, the Commission today is adopting the Trade-Through Disclosure Rule10 and amending the Quote Rule,11 substantially as proposed, with certain modifications recommended by commenters.