The Financial Industry Regulatory Authority (FINRA) issued a press release today announcing that
"it has fined Northern Trust Securities $600,000 for deficiencies in supervising sales of collateralized mortgage obligations (CMOs) and failure to have adequate systems in place to monitor certain high-volume securities trades."
The settlement is detailed in the FINRA AWC No. 2009018771601. Northern Trust failed to properly monitor concentration levels of CMOs, suitability of trades, trading volume and mark-up levels in customer accounts while it systematically excluded from review, through an 'exception reporting system', 43.5% of its accounts.
CMOs are a type of mortgage backed security that is divided into classes, or tranches, representing different levels of claims in the share of the principal which is especially important when there are principal losses. The sensitivity of CMOs to interest rate changes can be witnessed in the fallout of CMOs in 1994 when there was a substantial increase in interest rates. SLCG has written a paper describing the market and history of CMOs in the wake of the collapse of Brookstreet Securities and two Bear Stearns hedge funds which precise invested in CMOs. Investors can use our dedicated website in which we offer explanations and pricing about a wide range of products.
