The NASD on Monday said it ordered four firms to pay $7.9 million for charging excessive mark-ups or mark-downs on junk bond trades, and expelled one of the firms from the securities industry.
SG Americas Securities LLC, a unit of France's Societe Generale, will pay a $3.75 million fine and $728,674 in restitution. Royal Bank of Canada's RBC Capital Markets will pay a $2 million fine and $108,670 in restitution, and its affiliate RBC Dain Rauscher Inc will pay a $1 million fine and $158,467 in restitution.
The fourth firm, New York-based DebtTraders Inc, will pay $119,973 in restitution, and was expelled from the industry. The firm stopped doing business on July 31 and is liquidating.
The NASD also said the four firms had deficient supervision, that DebtTraders, RBC Dain Rauscher and SG had books and records violations, and that DebtTraders failed to correctly report bond transaction information to the NASD.
The regulator said the four firms between 2002 and 2004 charged mark-ups and mark-downs on 36 pairs of trades ranging from 5.3 percent to 40 percent, in the case of a trade by SG Cowen Securities Corp, now part of SG Americas.
It said these sales violated NASD rules requiring that member firms sell securities at fair prices. Mark-ups and mark-downs generally cannot exceed 5 percent, and for most debt transactions should be lower, the NASD said.
Junk, or high-yield, bonds carry lower credit ratings than investment-grade bond because of their perceived higher risks. They are often less liquid than higher quality bonds, leading some dealers to charge more on trades.
SG spokesman Jim Galvin said "we're pleased to see this matter voluntarily resolved." RBC did not immediately return a call seeking comment. DebtTraders could not immediately be reached.
The NASD was formerly known as the National Association of Securities Dealers.