Saturday, May 28, 2011

FINRA Harasses Small Brokerage Firms

This comes as no surprise. As the elitist brokerage firms are bailed out by the Fed, the quasi-government organization FINRA harasses small firms, who don't have the heft to buy access to the inner power circle.

NyPo's John Crudele reports:

Small stock brokerage firms say regulators are trying to kill them.

And they think the largest independent regulator of the securities industry -- the Financial Industry Regulatory Authority, or Finra, for short -- is nothing more than the hit man for large brokerage firms.

"I've been fighting with Finra for years. In some ways it's like an organized crime group," said John Busacca, founder of the Securities Industry Professional Association. "It's like paying protection money in Bensonhurst."

Busacca, who aired his grievances to me in a phone interview, complains that Finra won't take legal action against large firms but has become extremely picky when dealing with small broker/dealers.

Representatives of the small firms who sit on Finra's 22-member board are outgunned by those that represent big- and medium-sized operations as well as the 11 appointed public members.

Just a couple of years ago there were more than 6,000 small independents in the brokerage industry, providing thousands of jobs. That number is now down to around 4,100 and there's been a big drop-off in just the last few months.

Critics say Finra and other government agencies appear determined to force... [consolidation in] the industry , with the bigger firms gobbling up weaker, smaller ones.

The owner of one independent broker says he's been harassed by Finra for months and is often made to comply with regulations over which Finra has no authority. (Finra, mind you, failed to spot Ponzi schemer Bernie Madoff despite regularly examining his broker-dealer operations.)
This elitist control of enforcement agencies occurs in many industries, but securities industry regulations are particularly onerous.The Goldman Sachs' and JPMorgan's of the industry are allowed to skate on all kinds of infractions, but the small brokerage firms are cracked down upon for real and imagined infractions.

This ultimately results in difficulty for small firms to raise capital. The major brokerage firms aren't interested in small deals and the small brokerage firms have their hands tied which pretty much makes it impossible for them to raise IPO type money for small firms in need of capital.

I shudder to think about the small firms that would be creative and innovative, but never go beyond the planning stage because the money raising markets are cut off to them because of FINRA harassment of small broker-dealers.


  1. Thats how you create "too big to fail".

    They have experience in this in the past with other industries(eg: banks). May be we will see 5 major brokerages in body else matters.

  2. Ditto for FDA, Patent Office, USDA, etc etc etc.

    Hey, if these guys go on consolidating, maybe the whole thing will collapse into a sort of bureaucratic black hole by the Potomac.

    Now there's a happy thought.

  3. It's like the bitching in the UK about the Big Four and their market dominance. Audit is a very heavily regulated industry. So I wonder who had a hand in creating their dominance... the government? Nah, can't possibly be...