hilltop securities inc.hilltop securities inc. crd# 6220 sec# 8-45123 main office location 1201 elm...

BrokerCheck Report

HILLTOP SECURITIES INC.

Section Title

Report Summary

Firm History

CRD# 6220

1

11

Firm Profile 2 - 10

Page(s)

Firm Operations 12 - 22

Disclosure Events 23

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CRD# 6220

SEC# 8-45123

Main Office Location

1201 ELM STSUITE 3500DALLAS, TX 75270-2180Regulated by FINRA Dallas Office

Mailing Address

1201 ELM STSUITE 3500DALLAS, TX 75270-2180

This firm is a brokerage firm and an investmentadviser firm. For more information aboutinvestment adviser firms, visit the SEC'sInvestment Adviser Public Disclosure website at:

Business Telephone Number

214-859-1800

https://www.adviserinfo.sec.gov

Report Summary for this Firm

This report summary provides an overview of the brokerage firm. Additional information for this firm can be foundin the detailed report.

Disclosure Events

Brokerage firms are required to disclose certaincriminal matters, regulatory actions, civil judicialproceedings and financial matters in which the firm orone of its control affiliates has been involved.

Are there events disclosed about this firm? Yes

The following types of disclosures have beenreported:

Type Count

Regulatory Event 53

Civil Event 1

Arbitration 20

Firm Profile

This firm is classified as a corporation.

This firm was formed in Delaware on 12/31/1991.

Its fiscal year ends in December.

Firm History

Information relating to the brokerage firm's historysuch as other business names and successions(e.g., mergers, acquisitions) can be found in thedetailed report.

Firm Operations

Is this brokerage firm currently suspended with anyregulator? No

This firm conducts 20 types of businesses.

This firm is affiliated with financial or investmentinstitutions.

This firm does not have referral or financialarrangements with other brokers or dealers.

This firm is registered with:

• the SEC• 11 Self-Regulatory Organizations• 53 U.S. states and territories

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1©2020 FINRA. All rights reserved. Report about HILLTOP SECURITIES INC.

https://adviserinfo.sec.gov/firm/summary/6220


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This firm is classified as a corporation.

This firm was formed in Delaware on 12/31/1991.

CRD#

This section provides the brokerage firm's full legal name, "Doing Business As" name, business and mailingaddresses, telephone number, and any alternate name by which the firm conducts business and where such name isused.

Firm Profile

Firm Names and Locations

Its fiscal year ends in December.


SEC#

6220

8-45123

Main Office Location

Mailing Address

Business Telephone Number

Doing business as HILLTOP SECURITIES INC.

214-859-1800

Regulated by FINRA Dallas Office








This section provides information relating to all direct owners and executive officers of the brokerage firm.

Direct Owners and Executive Officers

Firm Profile

Position

Percentage of Ownership

Is this a public reportingcompany?

Position Start Date

Does this owner direct themanagement or policies ofthe firm?

HILLTOP SECURITIES HOLDINGS, LLC

PARENT

75% or more

No

Domestic Entity

01/2015

Yes

Is this a domestic or foreignentity or an individual?

Legal Name & CRD# (if any):

Position



Position Start Date


AGUILERA-PEON, MARIA TERESA

BOARD MEMBER

Less than 5%

No

Individual

07/2020

Yes

6185405



Position


Position Start Date

ALEXANDER, LAURA BONNELL

BOARD DIRECTOR

Less than 5%

Individual

08/2017

2900382








Direct Owners and Executive Officers (continued)

Firm Profile




Less than 5%

No

Yes

Position



Position Start Date


COGLIANO, MICHAEL ANTHONY

CHIEF COMPLIANCE OFFICER

Less than 5%

No

Individual

07/2018

Yes

2505017



Position



Position Start Date


COGLIANO, MICHAEL ANTHONY

AML OFFICER

Less than 5%

No

Individual

03/2018

Yes

2505017



EDGE, JOSEPH MICHAEL

4326551








Firm Profile

Position



Position Start Date


BOARD DIRECTOR

Less than 5%

No

Individual

10/2015

No

4326551


Position



Position Start Date


EDGE, JOSEPH MICHAEL

CHIEF FINANCIAL OFFICER

Less than 5%

No

Individual

01/2016

Yes

4326551



Position


Position Start Date


FEINBERG, HILLEL ARNOLD

CHAIRMAN EMERITUS

Less than 5%

Individual

07/2019

Yes

205642









Firm Profile



No

Yes

Position



Position Start Date


LEVENTHAL, LAURA

BOARD DIRECTOR

Less than 5%

No

Individual

09/2013

Yes

1175259



Position



Position Start Date


LEVENTHAL, LAURA

TREASURER/CHIEF ACCOUNTING OFFICER

Less than 5%

No

Individual

12/2011

Yes

1175259



LYONS, MICHAEL ANDREW

Individual

6647345









Firm Profile

Position



Position Start Date


ASSISTANT SECRETARY

Less than 5%

No

Individual

06/2016

No


Position



Position Start Date


MARZ, MICHAEL JOHN

BOARD DIRECTOR

Less than 5%

No

Individual

08/2017

Yes

874062



Position


Position Start Date


MEDANICH, DAVID KING

BOARD DIRECTOR

Less than 5%

Individual

08/2017

Yes

1030727









Firm Profile



No

Yes

Position



Position Start Date


MUSCHALEK, JOHN RICHARD

BOARD DIRECTOR

Less than 5%

No

Individual

03/2015

Yes

2226859



Position



Position Start Date


SOBEL, JONATHAN SCOTT

CHAIRMAN

Less than 5%

No

Individual

07/2019

Yes

1540818



WINGES, MARTIN BRADLEY

Individual

1929509









Firm Profile

Position



Position Start Date


CEO/PRESIDENT/DIRECTOR

Less than 5%

No

Individual

02/2019

Yes


Position



Position Start Date


WITTNEBEN, BRIAN LANE

GENERAL COUNSEL/SECRETARY

Less than 5%

No

Individual

03/2016

Yes

4861905








This section provides information relating to any indirect owners of the brokerage firm.

Indirect Owners

Firm Profile

HILLTOP HOLDINGS INC.

PARENT

HILLTOP SECURITIES HOLDINGS, LLC

75% or more

Yes

Domestic Entity

01/2015

Yes



Company through whichindirect ownership isestablished

Relationship to Direct Owner

Relationship Established









Firm History

This section provides information relating to any successions (e.g., mergers, acquisitions) involving the firm.

No information reported.






Firm Operations

RegistrationsThis section provides information about the regulators (Securities and Exchange Commission (SEC), self-regulatoryorganizations (SROs), and U.S. states and territories) with which the brokerage firm is currently registered andlicensed, the date the license became effective, and certain information about the firm's SEC registration.

This firm is currently registered with the SEC, 11 SROs and 53 U.S. states and territories.

SEC Registration Questions

This firm is registered with the SEC as:

A broker-dealer:

A broker-dealer and government securities broker or dealer:

A government securities broker or dealer only:

This firm has ceased activity as a government securities broker or dealer:

Yes

Yes

No

No

Federal Regulator Status Date Effective

SEC Approved 09/01/1992

Self-Regulatory Organization Status Date Effective

FINRA Approved 05/30/1972

Cboe BYX Exchange, Inc. Approved 09/01/2010

Cboe BZX Exchange, Inc. Approved 10/23/2008

Cboe EDGX Exchange, Inc. Approved 05/21/2013

Cboe Exchange, Inc. Approved 07/03/2007

Investors' Exchange LLC Approved 07/28/2016

NYSE American LLC Approved 04/05/2018

NYSE Arca, Inc. Approved 04/05/2018

Nasdaq BX, Inc. Approved 06/22/2012

Nasdaq Stock Market Approved 07/12/2006

New York Stock Exchange Approved 11/17/1982






Firm Operations

Registrations (continued)

U.S. States &Territories

Status Date Effective

Alabama Approved 03/22/1991

Alaska Approved 05/10/1996

Arizona Approved 04/12/1987

Arkansas Approved 08/19/1992

California Approved 11/22/1983

Colorado Approved 02/01/1983

Connecticut Approved 06/29/1988

Delaware Approved 09/20/1996

District of Columbia Approved 09/29/1989

Florida Approved 04/27/1983

Georgia Approved 03/11/1986

Hawaii Approved 01/02/1990

Idaho Approved 01/28/1994

Illinois Approved 10/19/1982

Indiana Approved 01/18/1984

Iowa Approved 05/01/1984

Kansas Approved 04/30/1979

Kentucky Approved 07/16/1982

Louisiana Approved 04/20/1983

Maine Approved 03/28/1996

Maryland Approved 08/21/1989

Massachusetts Approved 09/27/1989

Michigan Approved 09/08/1989

Minnesota Approved 08/17/1989

Mississippi Approved 05/16/1989

Missouri Approved 07/18/1983

Montana Approved 07/14/1986

Nebraska Approved 11/16/1984

Nevada Approved 09/24/1984

New Hampshire Approved 09/19/1996

New Jersey Approved 07/18/1983

New Mexico Approved 12/05/1986

New York Approved 02/28/1986

U.S. States &Territories

Status Date Effective

North Carolina Approved 03/11/1986

North Dakota Approved 03/10/1994

Ohio Approved 07/16/1982

Oklahoma Approved 07/17/1982

Oregon Approved 11/27/1989

Pennsylvania Approved 09/17/1981

Puerto Rico Approved 10/01/2012

Rhode Island Approved 09/06/1989

South Carolina Approved 04/08/1986

South Dakota Approved 05/06/1996

Tennessee Approved 08/17/1981

Texas Approved 10/07/1992

Utah Approved 01/01/1986

Vermont Approved 11/28/1989

Virgin Islands Approved 06/13/2011

Virginia Approved 10/12/1984

Washington Approved 01/13/1986

West Virginia Approved 04/26/1991

Wisconsin Approved 10/24/1983

Wyoming Approved 08/28/1989






Firm Operations

Types of BusinessThis section provides the types of business, including non-securities business, the brokerage firm is engaged in orexpects to be engaged in.

Other Types of Business

This firm does effect transactions in commodities, commodity futures, or commodity options.This firm does not engage in other non-securities business.

Non-Securities Business Description:

This firm currently conducts 20 types of businesses.

Types of Business

Exchange member engaged in exchange commission business other than floor activities

Exchange member engaged in floor activities

Broker or dealer making inter-dealer markets in corporation securities over-the-counter

Broker or dealer retailing corporate equity securities over-the-counter

Broker or dealer selling corporate debt securities

Underwriter or selling group participant (corporate securities other than mutual funds)

Mutual fund retailer

U S. government securities dealer

U S. government securities broker

Municipal securities dealer

Municipal securities broker

Broker or dealer selling variable life insurance or annuities

Put and call broker or dealer or option writer

Broker or dealer selling securities of non-profit organizations (e.g., churches, hospitals)

Investment advisory services

Broker or dealer selling tax shelters or limited partnerships in primary distributions

Broker or dealer selling tax shelters or limited partnerships in the secondary market

Trading securities for own account

Private placements of securities

Broker or dealer selling interests in mortgages or other receivables






Firm Operations

Clearing Arrangements

This firm does hold or maintain funds or securities or provide clearing services for other broker-dealer(s).

Introducing Arrangements

This firm does not refer or introduce customers to other brokers and dealers.






Firm Operations

Industry Arrangements

This firm does have books or records maintained by a third party.

Name: IFS

Business Address: 721 JETTON STREETSUITE 300DAVIDSON, NC 28036

Effective Date: 05/08/2020

Description: COMPREHENSIVE PORTION OF THE FIRM'S OPERATIONAL ANDCUSTOMER ACCOUNT RECORDS.

Name: BROADRIDGE FINANCIAL SOLUTIONS

Business Address: 1155 MERCEDES WAYEDGEWOOD, NY 11717


Description: HILLTOP UTILIZES BROADRIDGE SERVICES FOR THE GENERATION ANDSTORAGE OF BACKOFFICE OPERATIONAL REPORTS, CONFIRMS,STATEMENTS, LETTERS, TAX DOCUMENTS, CHECK COPIES ANDACCOUNT DOCUMENTS AND THE DATA REQUIRED TO GENERATETHESE REPORTS AND DOCUMENTS.

Name: BROADRIDGE ADVISOR COMPENSATION SOLUTIONS

Business Address: 5 DAKOTA DRIVESUITE 300LAKE SUCCESS, NY 11042


Description: VARIOUS ELECTRONIC ACCOUNT OPENING AND TRANSACTIONRECORD DATA.

Name: FIS

Business Address: 3 VAN DE GRAAFF DRIVEBURLINGTON, MI 01803


Description: COMPREHENSIVE PORTION OF THE FIRM'S OPERATIONAL ANDCUSTOMER ACCOUNT RECORDS.

Name: SAI GLOBAL

Business Address: 205 WEST WACKER DRIVESUITE 1800CHICAGO, IL 60606






Firm Operations

Industry Arrangements (continued)Business Address: 205 WEST WACKER DRIVE

SUITE 1800CHICAGO, IL 60606


Description: HILLTOP SECURITIES UTILIZES THIS SERVICE PROVIDER TO PUBLISH,UPDATE AND STORE THE FIRM'S WRITTEN SUPERVISORYPROCEDURES.

Name: SMARSH

Business Address: 851 SW 6TH AVENUESUITE 800PORTLAND, OR 97204


Description: HILLTOP SECURITIES, INC. HAS CONTRACTED WITH SMARSH FOR THERETENTION OF ELECTRONIC EMAIL COMMUNICATIONS.

Name: MARKETINGPRO. INC.

Business Address: 2226 N COAST HWY, #320NEWPORT, OR 97365


Description: MARKETINGPRO, INC. MAY MAINTAIN A PORTION OF FIRM APPROVALRECORDS OF RETAIL COMMUNICATIONS.

Name: EMERALD CONNECT

Business Address: 15050 AVENUE OF SCIENCESUITE 200SAN DIEGO, CA 92128


Description: EMERALD CONNECT MAINTAINS AND UPDATES INDIVIDUALREPRESENTATIVE WEBSITES AT THE FIRM'S DIRECTION.

Name: IRON MOUNTAN

Business Address: 745 ATLANTIC AVENUE,BOSTON, MA 02111


Description: HILLTOP SECURITIES UTILIZES IRON MOUNTAIN FOR THE PURPOSE OFSTORING GENERAL BUSINESS RECORDS THAT ARE ELIGIBLE FORSTORAGE OFF-SITE.

Name: AUTOMATED SECURITIES CLEARANCE, LLC (SUNGARD PROTEGENT)

Business Address: 90 SOUTHWEST 400 WEST,SALT LAKE CITY, UT 84101






Firm Operations

Industry Arrangements (continued)

This firm does not have accounts, funds, or securities maintained by a third party.

This firm does have customer accounts, funds, or securities maintained by a third party.

This firm does not have individuals who control its management or policies through agreement.

This firm does not have individuals who wholly or partly finance the firm's business.

Control Persons/Financing

Business Address: 90 SOUTHWEST 400 WEST,SALT LAKE CITY, UT 84101


Description: HILLTOP SECURITIES MAINTAINS A SOFTWARE LICENSING AGREEMENTIN ORDER TO UTILIZE SUNGARD'S PROTEGENT SURVEILLANCE TRADEREVIEW AND PROTEGENT SURVEILLANCE ACCOUNT REVIEWSOFTWARE. THE SUPERVISORY ALERTS AS WELL AS THE DETAILSRELATING TO THE REVIEWS CONDUCTED ARE MAINTAINED ONSUNGARD'S PLATFORM. THE ACTUAL TRADE DETAIL THAT FLOWSTHROUGH THE SUNGARD SOFTWARE IS NOT MAINTAINED BYSUNGARD ON BEHALF OF THE FIRM.

Name: SCHWAB COMPLIANCE TECHNOLOGIES, INC

Business Address: 4853 TOWN CENTER PARKWAYJACKSON, FL 32246


Description: HILLTOP SECURITIES MAINTAINS A SUBSCRIPTION AGREEMENT WITHAND UTILIZES CHARLES SCHWAB'S COMPLIANCE SOLUTIONSPLATFORM FOR THE PURPOSE OF RECEIVING IN AND REVIEWINGEMPLOYEE OUTSIDE ACCOUNT TRADING. EMPLOYEE TRADE DETAILAS WELL AS THE COMPLIANCE REVIEWS CONDUCTED THROUGH THEPLATFORM IS MAINTAINED ON THIS WEB BASED PLATFORM BYCOMPLIANCE 11.

Name: CHARLES SCHWAB & CO., INC.

Business Address: 101 MONTGOMERY STREETSAN FRANCISCO, CA 94104

CRD #: 5393


Description: CHARLES SCHWAB & CO., INC. CARRIES, FOR THE PURPOSE OFCLEARING TRANSACTIONS IN OPEN-END INVESTMENT COMPANYSHARES (MUTUAL FUNDS) ON AN OMNIBUS BASIS ON BEHALF OF OURCORRESPONDENT'S CUSTOMERS.






Firm Operations

Industry Arrangements (continued)

This firm does not have individuals who wholly or partly finance the firm's business.






Firm Operations

Organization AffiliatesThis section provides information on control relationships the firm has with other firms in the securities, investmentadvisory, or banking business.

This firm is, directly or indirectly:

· in control of· controlled by· or under common control withthe following partnerships, corporations, or other organizations engaged in the securities or investmentadvisory business.

Yes

No

No

01/01/2015

1201 ELM STREETSUITE 3500DALLAS, TX 75270

110760

HILLTOP SECURITIES ASSET MANAGEMENT, LLC is under common control with the firm.

HILLTOP SECURITIES ASSET MANAGEMENT, LLC, AN AFFILIATE OFAPPLICANT, IS AN INVESTMENT ADVISOR REGISTERED WITH THESECURITIES AND EXCHANGE COMMISSION FOCUSING ON FIXED-INCOMEASSET MANAGEMENT, AND OFFERS INVESTMENT ADVISORY SERVICES TOGOVERNMENT ENTITIES AND INSTITIUTIONS. THIS ADVISOR IS UNDERTHE COMMON CONTROL OF HILLTOP SECURITIES HOLDINGS, L.L.C., AWHOLLY OWNED SUBSIDIARY OF HILLTOP HOLDINGS INC., A PUBLICLYTRADED FIRM (NYSE-HTH).

Description:

Investment AdvisoryActivities:

Securities Activities:

Country:

Foreign Entity:

Effective Date:

Business Address:

CRD #:

Yes

No

04/24/1978


SOUTHWEST INSURANCE AGENCY, INC. is under common control with the firm.


Country:

Foreign Entity:

Effective Date:

Business Address:






Firm Operations

Organization Affiliates (continued)

No

Yes

EFFECTIVE JANUARY 1, 2015 SOUTHWEST INSURANCE AGENCY, INC. ISUNDER THE COMMON CONTROL OF HILLTOP SECURITIES HOLDINGS, LLCWHICH IS A SUBSIDIARY OF HILLTOP HOLDINGS INC., A PUBLICLY TRADEDFIRM (NYSE-HTH)

Description:



No

Yes

No

04/05/1995


SOUTHWEST FINANCIAL INSURANCE AGENCY, INC. is under common control with the firm.

EFFECTIVE JANUARY 1, 2015 SOUTHWEST FINANCIAL INSURANCEAGENCY, INC. IS UNDER THE COMMON CONTROL OF HILLTOP SECURITIESHOLDINGS, LLC WHICH IS A SUBSIDIARY OF HILLTOP HOLDINGS INC., APUBLICLY TRADED FIRM (NYSE-HTH)

Description:



Country:

Foreign Entity:

Effective Date:

Business Address:

Yes

Yes

No

01/07/1983

1201 ELMSUITE 3500DALLAS, TX 75270

17587

HILLTOP SECURITIES INDEPENDENT NETWORK INC. is under common control with the firm.

EFFECTIVE JANUARY 1, 2015 HILLTOP SECURITIES INDEPENDENTNETWORK INC. IS UNDER THE COMMON CONTROL OF HILLTOP HOLDINGS,LLC WHICH IS A SUBSIDIARY OF HILLTOP HOLDINGS INC., A PUBLICLYTRADED FIRM (NYSE-HTH)

Description:



Country:

Foreign Entity:

Effective Date:

Business Address:

CRD #:






Firm Operations

Organization Affiliates (continued)EFFECTIVE JANUARY 1, 2015 HILLTOP SECURITIES INDEPENDENTNETWORK INC. IS UNDER THE COMMON CONTROL OF HILLTOP HOLDINGS,LLC WHICH IS A SUBSIDIARY OF HILLTOP HOLDINGS INC., A PUBLICLYTRADED FIRM (NYSE-HTH)

Description:

This firm is directly or indirectly, controlled by the following:

· bank holding company· national bank· state member bank of the Federal Reserve System· state non-member bank· savings bank or association· credit union· or foreign bank

Effective Date:

Business Address:

Description: HILLTOP HOLDINGS INC. IS A PUBLICLY TRADED FIRM (NYSE-HTH) AND ISTHE PARENT OF PLAINSCAPITAL CORPORATION AND HILLTOP SECURITIESHOLDINGS, LLC PLAINSCAPITAL CORPORATION IS A BANK HOLDINGCOMPANY.

HILLTOP HOLDINGS INC. is a Bank Holding Company and controls the firm.

01/01/2015

200 CRESCENT COURTSUITE 1330DALLAS, TX 75201






Disclosure Events

All firms registered to sell securities or provide investment advice are required to disclose regulatory actions, criminal orcivil judicial proceedings, and certain financial matters in which the firm or one of its control affiliates has been involved.For your convenience, below is a matrix of the number and status of disclosure events involving this brokerage firm orone of its control affiliates. Further information regarding these events can be found in the subsequent pages of thisreport.

Final On AppealPending

Regulatory Event 0 53 0

Civil Event 1 0 0

Arbitration N/A 20 N/A






Disclosure Event Details

What you should know about reported disclosure events:

1. BrokerCheck provides details for any disclosure event that was reported in CRD. It also includessummary information regarding FINRA arbitration awards in cases where the brokerage firm wasnamed as a respondent.

2. Certain thresholds must be met before an event is reported to CRD, for example: o A law enforcement agency must file formal charges before a brokerage firm is required to disclose a

particular criminal event.3. Disclosure events in BrokerCheck reports come from different sources:

o Disclosure events for this brokerage firm were reported by the firm and/or regulators. When the firmand a regulator report information for the same event, both versions of the event will appear in theBrokerCheck report. The different versions will be separated by a solid line with the reporting sourcelabeled.

4. There are different statuses and dispositions for disclosure events: o A disclosure event may have a status of pending, on appeal, or final.

§ A "pending" event involves allegations that have not been proven or formally adjudicated.§ An event that is "on appeal" involves allegations that have been adjudicated but are currently

being appealed.§ A "final" event has been concluded and its resolution is not subject to change.

o A final event generally has a disposition of adjudicated, settled or otherwise resolved.§ An "adjudicated" matter includes a disposition by (1) a court of law in a criminal or civil matter,

or (2) an administrative panel in an action brought by a regulator that is contested by the partycharged with some alleged wrongdoing.

§ A "settled" matter generally involves an agreement by the parties to resolve the matter.Please note that firms may choose to settle customer disputes or regulatory matters forbusiness or other reasons.

§ A "resolved" matter usually involves no payment to the customer and no finding ofwrongdoing on the part of the individual broker. Such matters generally involve customerdisputes.

5. You may wish to contact the brokerage firm to obtain further information regarding any of thedisclosure events contained in this BrokerCheck report.

Regulatory - Final

This type of disclosure event involves (1) a final, formal proceeding initiated by a regulatory authority (e.g., a statesecurities agency, self-regulatory organization, federal regulator such as the U.S. Securities and Exchange Commission,foreign financial regulatory body) for a violation of investment-related rules or regulations; or (2) a revocation orsuspension of the authority of a brokerage firm or its control affiliate to act as an attorney, accountant or federalcontractor.

Disclosure 1 of 53

Reporting Source: Regulator

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOESTABLISH AND IMPLEMENT AN AML COMPLIANCE PROGRAMREASONABLY DESIGNED TO DETECT AND REPORT SUSPICIOUS TRADINGACTIVITY IN LOW-PRICED SECURITIES. THE FINDINGS STATED THATCUSTOMERS INTRODUCED TO THE FIRM TRADED AT LEAST 2.07 BILLIONSHARES OF LOW-PRICED SECURITIES, VALUED AT APPROXIMATELY $221MILLION. THESE SHARES WERE NOT SUBJECT TO A REASONABLE REVIEWTO DETECT AND INVESTIGATE RED FLAGS OF SUSPICIOUS ACTIVITY FORPURPOSES OF DETERMINING WHETHER TO FILE A SAR. THE FIRM FAILEDTO FOLLOW THE DEPARTMENT OF TREASURY'S STANDARD FORDETERMINING WHETHER TO FILE A SAR, REQUIRING PROOF OF ACTUALFRAUD AS OPPOSED TO SUSPICION THAT A TRANSACTION INVOLVEDUNLAWFUL ACTIVITY OR LACKED AN APPARENT LAWFUL PURPOSE. THEFIRM FAILED TO IMPLEMENT ITS AML PROCEDURES REQUIRING THECOLLECTION AND COMPLETION OF DEPOSIT REVIEW FORMS INCONNECTION WITH THE DEPOSIT OF LOW-PRICED SECURITIES,RESULTING IN MISSED RED FLAGS OF POTENTIALLY SUSPICIOUSACTIVITY. THE FIRM'S AML COMPLIANCE PROGRAM FAILED TOREASONABLY DETECT AND REPORT SUSPICIOUS TRADING ACTIVITY, INPART, BECAUSE IT FAILED TO DEVOTE ADEQUATE RESOURCES TO ITS AMLPROGRAM. THE FIRM'S AML ANALYSTS WERE TASKED WITH REVIEWING AREPORT THAT DID NOT PROVIDE FOR A REASONABLE AML REVIEW. DUETO DEFICIENCIES IN THE REPORT, THE ANALYSTS DID NOT USE RISK-BASED FACTORS TO CHOOSE TRANSACTIONS FOR REVIEW AND, BASEDON SAMPLE REVIEWED BY THE STAFF, WERE ONLY ABLE TO REVIEWAPPROXIMATELY 20% OF THE TRANSACTIONS, THESE 20% WERE NOT THEHIGHEST RISK TRANSACTIONS AT THE FIRM. THE FINDINGS ALSO STATEDTHAT THE FIRM FAILED TO SUBMIT FORM G-32 INFORMATION TO EMMA INCONNECTION WITH PRIMARY OFFERINGS OF MUNICIPAL SECURITIESTHAT THE FIRM SERVED AS PLACEMENT AGENT FOR. THE FIRM ALSOMADE FORM G-32 FILINGS TO EMMA THAT WERE BETWEEN 1 AND 3 DAYSLATE. SUCH CONDUCT VIOLATED MSRB RULE G-32. FURTHERMORE, THEFIRM FAILED TO PROVIDE REQUIRED MSRB RULE G-17 DISCLOSURELETTERS TO ISSUERS IN CONNECTION WITH OFFERINGS PLUS ONEOTHER OFFERING, IN VIOLATION OF MSRB RULE G-17. THE FIRMDISCOVERED THESE FAILURES AS IT TRAINED EMPLOYEES DURING ANACQUISITION OF ANOTHER FIRM AND SELF-REPORTED THEM TO FINRA.FINALLY, THE FIRM FAILED TO REPORT ON FORM G-37 THAT IT HADCONDUCTED MUNICIPAL SECURITIES BUSINESS WITH THE ISSUERS BYACTING AS A PLACEMENT AGENT IN CONNECTION WITH THE ISSUERS'MUNICIPAL SECURITIES OFFERINGS. AS A RESULT OF THIS CONDUCT, THEFIRM VIOLATED MSRB RULE G-37.

Current Status: Final






Initiated By: FINRA

Date Initiated: 07/28/2020

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOESTABLISH AND IMPLEMENT AN AML COMPLIANCE PROGRAMREASONABLY DESIGNED TO DETECT AND REPORT SUSPICIOUS TRADINGACTIVITY IN LOW-PRICED SECURITIES. THE FINDINGS STATED THATCUSTOMERS INTRODUCED TO THE FIRM TRADED AT LEAST 2.07 BILLIONSHARES OF LOW-PRICED SECURITIES, VALUED AT APPROXIMATELY $221MILLION. THESE SHARES WERE NOT SUBJECT TO A REASONABLE REVIEWTO DETECT AND INVESTIGATE RED FLAGS OF SUSPICIOUS ACTIVITY FORPURPOSES OF DETERMINING WHETHER TO FILE A SAR. THE FIRM FAILEDTO FOLLOW THE DEPARTMENT OF TREASURY'S STANDARD FORDETERMINING WHETHER TO FILE A SAR, REQUIRING PROOF OF ACTUALFRAUD AS OPPOSED TO SUSPICION THAT A TRANSACTION INVOLVEDUNLAWFUL ACTIVITY OR LACKED AN APPARENT LAWFUL PURPOSE. THEFIRM FAILED TO IMPLEMENT ITS AML PROCEDURES REQUIRING THECOLLECTION AND COMPLETION OF DEPOSIT REVIEW FORMS INCONNECTION WITH THE DEPOSIT OF LOW-PRICED SECURITIES,RESULTING IN MISSED RED FLAGS OF POTENTIALLY SUSPICIOUSACTIVITY. THE FIRM'S AML COMPLIANCE PROGRAM FAILED TOREASONABLY DETECT AND REPORT SUSPICIOUS TRADING ACTIVITY, INPART, BECAUSE IT FAILED TO DEVOTE ADEQUATE RESOURCES TO ITS AMLPROGRAM. THE FIRM'S AML ANALYSTS WERE TASKED WITH REVIEWING AREPORT THAT DID NOT PROVIDE FOR A REASONABLE AML REVIEW. DUETO DEFICIENCIES IN THE REPORT, THE ANALYSTS DID NOT USE RISK-BASED FACTORS TO CHOOSE TRANSACTIONS FOR REVIEW AND, BASEDON SAMPLE REVIEWED BY THE STAFF, WERE ONLY ABLE TO REVIEWAPPROXIMATELY 20% OF THE TRANSACTIONS, THESE 20% WERE NOT THEHIGHEST RISK TRANSACTIONS AT THE FIRM. THE FINDINGS ALSO STATEDTHAT THE FIRM FAILED TO SUBMIT FORM G-32 INFORMATION TO EMMA INCONNECTION WITH PRIMARY OFFERINGS OF MUNICIPAL SECURITIESTHAT THE FIRM SERVED AS PLACEMENT AGENT FOR. THE FIRM ALSOMADE FORM G-32 FILINGS TO EMMA THAT WERE BETWEEN 1 AND 3 DAYSLATE. SUCH CONDUCT VIOLATED MSRB RULE G-32. FURTHERMORE, THEFIRM FAILED TO PROVIDE REQUIRED MSRB RULE G-17 DISCLOSURELETTERS TO ISSUERS IN CONNECTION WITH OFFERINGS PLUS ONEOTHER OFFERING, IN VIOLATION OF MSRB RULE G-17. THE FIRMDISCOVERED THESE FAILURES AS IT TRAINED EMPLOYEES DURING ANACQUISITION OF ANOTHER FIRM AND SELF-REPORTED THEM TO FINRA.FINALLY, THE FIRM FAILED TO REPORT ON FORM G-37 THAT IT HADCONDUCTED MUNICIPAL SECURITIES BUSINESS WITH THE ISSUERS BYACTING AS A PLACEMENT AGENT IN CONNECTION WITH THE ISSUERS'MUNICIPAL SECURITIES OFFERINGS. AS A RESULT OF THIS CONDUCT, THEFIRM VIOLATED MSRB RULE G-37.






Principal Sanction(s)/ReliefSought:

Other Sanction(s)/ReliefSought:


Docket/Case Number: 2017053708001

Principal Product Type: No Product

Other Product Type(s):

Resolution Date: 07/28/2020

Resolution:

Other Sanctions Ordered: UNDERTAKING

Sanction Details: THE FIRM WAS CENSURED, FINED $475,000 AND REQUIRED TO RETAINONE OR MORE QUALIFIED INDEPENDENT CONSULTANTS, WITHIN 120DAYS, TO CONDUCT A COMPREHENSIVE REVIEW OF THEREASONABLENESS OF ITS POLICIES, SYSTEMS AND PROCEDURES(WRITTEN AND OTHERWISE) AND TRAINING RELATING TO COMPLIANCEWITH FINRA RULE 3310 AND THE REQUIREMENTS OF THE BANK SECRECYACT, 31 USC §5311, ET. SEQ., AND THE REGULATIONS PROMULGATEDTHEREUNDER.

Does the order constitute afinal order based onviolations of any laws orregulations that prohibitfraudulent, manipulative, ordeceptive conduct?

No

Sanctions Ordered: CensureMonetary/Fine $475,000.00

Acceptance, Waiver & Consent(AWC)

iReporting Source: Firm

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOESTABLISH AND IMPLEMENT AN AML COMPLIANCE PROGRAMREASONABLY DESIGNED TO DETECT AND REPORT SUSPICIOUS TRADINGACTIVITY IN LOW-PRICED SECURITIES. THE FINDINGS STATED THATCUSTOMERS INTRODUCED TO THE FIRM TRADED AT LEAST 2.07 BILLIONSHARES OF LOW-PRICED SECURITIES, VALUED AT APPROXIMATELY $221MILLION. THESE SHARES WERE NOT SUBJECT TO A REASONABLE REVIEWTO DETECT AND INVESTIGATE RED FLAGS OF SUSPICIOUS ACTIVITY FORPURPOSES OF DETERMINING WHETHER TO FILE A SAR. THE FIRM FAILEDTO FOLLOW THE DEPARTMENT OF TREASURY'S STANDARD FORDETERMINING WHETHER TO FILE A SAR, REQUIRING PROOF OF ACTUALFRAUD AS OPPOSED TO SUSPICION THAT A TRANSACTION INVOLVEDUNLAWFUL ACTIVITY OR LACKED AN APPARENT LAWFUL PURPOSE. THEFIRM FAILED TO IMPLEMENT ITS AML PROCEDURES REQUIRING THECOLLECTION AND COMPLETION OF DEPOSIT REVIEW FORMS INCONNECTION WITH THE DEPOSIT OF LOW-PRICED SECURITIES,RESULTING IN MISSED RED FLAGS OF POTENTIALLY SUSPICIOUSACTIVITY. THE FIRM'S AML COMPLIANCE PROGRAM FAILED TOREASONABLY DETECT AND REPORT SUSPICIOUS TRADING ACTIVITY, INPART, BECAUSE IT FAILED TO DEVOTE ADEQUATE RESOURCES TO ITS AMLPROGRAM. THE FIRM'S AML ANALYSTS WERE TASKED WITH REVIEWING AREPORT THAT DID NOT PROVIDE FOR A REASONABLE AML REVIEW. DUETO DEFICIENCIES IN THE REPORT, THE ANALYSTS DID NOT USE RISK-BASED FACTORS TO CHOOSE TRANSACTIONS FOR REVIEW AND, BASEDON SAMPLE REVIEWED BY THE STAFF, WERE ONLY ABLE TO REVIEWAPPROXIMATELY 20% OF THE TRANSACTIONS, THESE 20% WERE NOT THEHIGHEST RISK TRANSACTIONS AT THE FIRM. THE FINDINGS ALSO STATEDTHAT THE FIRM FAILED TO SUBMIT FORM G-32 INFORMATION TO EMMA INCONNECTION WITH PRIMARY OFFERINGS OF MUNICIPAL SECURITIESTHAT THE FIRM SERVED AS PLACEMENT AGENT FOR. THE FIRM ALSOMADE FORM G-32 FILINGS TO EMMA THAT WERE BETWEEN 1 AND 3 DAYSLATE. SUCH CONDUCT VIOLATED MSRB RULE G-32. FURTHERMORE, THEFIRM FAILED TO PROVIDE REQUIRED MSRB RULE G-17 DISCLOSURELETTERS TO ISSUERS IN CONNECTION WITH OFFERINGS PLUS ONEOTHER OFFERING, IN VIOLATION OF MSRB RULE G-17. THE FIRMDISCOVERED THESE FAILURES AND IT TRAINED EMPLOYEES DURING ITSACQUISITION AND SELF-REPORTED THEM TO FINRA. FINALLY, THE FIRMFAILED TO REPORT ON FORM G-37 THAT IT HAD CONDUCTED MUNICIPALSECURITIES BUSINESS WITH THE ISSUERS BY ACTING AS A PLACEMENTAGENT IN CONNECTION WITH THE ISSUERS' MUNICIPAL SECURITIESOFFERINGS. AS A RESULT OF THIS CONDUCT, THE FIRM VIOLATED MSRBRULE G-37.






https://www.finra.org/rules-guidance/oversight-enforcement/finra-disciplinary-actions?search=2017053708001


Initiated By: FINRA


Civil and Administrative Penalt(ies) /Fine(s)





WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOESTABLISH AND IMPLEMENT AN AML COMPLIANCE PROGRAMREASONABLY DESIGNED TO DETECT AND REPORT SUSPICIOUS TRADINGACTIVITY IN LOW-PRICED SECURITIES. THE FINDINGS STATED THATCUSTOMERS INTRODUCED TO THE FIRM TRADED AT LEAST 2.07 BILLIONSHARES OF LOW-PRICED SECURITIES, VALUED AT APPROXIMATELY $221MILLION. THESE SHARES WERE NOT SUBJECT TO A REASONABLE REVIEWTO DETECT AND INVESTIGATE RED FLAGS OF SUSPICIOUS ACTIVITY FORPURPOSES OF DETERMINING WHETHER TO FILE A SAR. THE FIRM FAILEDTO FOLLOW THE DEPARTMENT OF TREASURY'S STANDARD FORDETERMINING WHETHER TO FILE A SAR, REQUIRING PROOF OF ACTUALFRAUD AS OPPOSED TO SUSPICION THAT A TRANSACTION INVOLVEDUNLAWFUL ACTIVITY OR LACKED AN APPARENT LAWFUL PURPOSE. THEFIRM FAILED TO IMPLEMENT ITS AML PROCEDURES REQUIRING THECOLLECTION AND COMPLETION OF DEPOSIT REVIEW FORMS INCONNECTION WITH THE DEPOSIT OF LOW-PRICED SECURITIES,RESULTING IN MISSED RED FLAGS OF POTENTIALLY SUSPICIOUSACTIVITY. THE FIRM'S AML COMPLIANCE PROGRAM FAILED TOREASONABLY DETECT AND REPORT SUSPICIOUS TRADING ACTIVITY, INPART, BECAUSE IT FAILED TO DEVOTE ADEQUATE RESOURCES TO ITS AMLPROGRAM. THE FIRM'S AML ANALYSTS WERE TASKED WITH REVIEWING AREPORT THAT DID NOT PROVIDE FOR A REASONABLE AML REVIEW. DUETO DEFICIENCIES IN THE REPORT, THE ANALYSTS DID NOT USE RISK-BASED FACTORS TO CHOOSE TRANSACTIONS FOR REVIEW AND, BASEDON SAMPLE REVIEWED BY THE STAFF, WERE ONLY ABLE TO REVIEWAPPROXIMATELY 20% OF THE TRANSACTIONS, THESE 20% WERE NOT THEHIGHEST RISK TRANSACTIONS AT THE FIRM. THE FINDINGS ALSO STATEDTHAT THE FIRM FAILED TO SUBMIT FORM G-32 INFORMATION TO EMMA INCONNECTION WITH PRIMARY OFFERINGS OF MUNICIPAL SECURITIESTHAT THE FIRM SERVED AS PLACEMENT AGENT FOR. THE FIRM ALSOMADE FORM G-32 FILINGS TO EMMA THAT WERE BETWEEN 1 AND 3 DAYSLATE. SUCH CONDUCT VIOLATED MSRB RULE G-32. FURTHERMORE, THEFIRM FAILED TO PROVIDE REQUIRED MSRB RULE G-17 DISCLOSURELETTERS TO ISSUERS IN CONNECTION WITH OFFERINGS PLUS ONEOTHER OFFERING, IN VIOLATION OF MSRB RULE G-17. THE FIRMDISCOVERED THESE FAILURES AND IT TRAINED EMPLOYEES DURING ITSACQUISITION AND SELF-REPORTED THEM TO FINRA. FINALLY, THE FIRMFAILED TO REPORT ON FORM G-37 THAT IT HAD CONDUCTED MUNICIPALSECURITIES BUSINESS WITH THE ISSUERS BY ACTING AS A PLACEMENTAGENT IN CONNECTION WITH THE ISSUERS' MUNICIPAL SECURITIESOFFERINGS. AS A RESULT OF THIS CONDUCT, THE FIRM VIOLATED MSRBRULE G-37.










UNDERTAKING TO ENGAGE AN INDEPENDENT CONSULTANT.


Resolution:


Sanction Details: THE FIRM WAS CENSURED, FINED $475,000 AND REQUIRED TO RETAINONE OR MORE QUALIFIED INDEPENDENT CONSULTANTS, WITHIN 120DAYS, TO CONDUCT A COMPREHENSIVE REVIEW OF THEREASONABLENESS OF ITS POLICIES, SYSTEMS AND PROCEDURES(WRITTEN AND OTHERWISE) AND TRAINING RELATING TO COMPLIANCEWITH FINRA RULE 3310 AND THE REQUIREMENTS OF THE BANK SECRECYACT, 31 USC §5311, ET. SEQ., AND THE REGULATIONS PROMULGATEDTHEREUNDER.



Disclosure 2 of 53

i


Allegations: SEC IA RELEASE 40-5393, SEPTEMBER 30, 2019: THE SECURITIES ANDEXCHANGE COMMISSION DEEMS IT APPROPRIATE AND IN THE PUBLICINTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESISTPROCEEDINGS BE INSTITUTED AGAINST HILLTOP SECURITIES INC.("RESPONDENT"). ON THE BASIS OF THIS ORDER AND RESPONDENT'SOFFER, THE COMMISSION FINDS THAT THESE PROCEEDINGS ARISE OUTOF BREACHES OF FIDUCIARY DUTY AND INADEQUATE DISCLOSURES BYTHE RESPONDENT IN CONNECTION WITH ITS MUTUAL FUND SHARECLASS SELECTION PRACTICES AND THE FEES IT RECEIVED. AT TIMESDURING THE RELEVANT PERIOD, RESPONDENT PURCHASED,RECOMMENDED, OR HELD FOR ADVISORY CLIENTS MUTUAL FUND SHARECLASSES THAT CHARGED 12B-1 FEES INSTEAD OF LOWER-COST SHARECLASSES OF THE SAME FUNDS FOR WHICH THE CLIENTS WERE ELIGIBLE.RESPONDENT RECEIVED 12B-1 FEES IN CONNECTION WITH THESEINVESTMENTS. RESPONDENT FAILED TO DISCLOSE IN ITS FORM ADV OROTHERWISE THE CONFLICTS OF INTEREST RELATED TO (A) ITS RECEIPTOF 12B-1 FEES, AND/OR (B) ITS SELECTION OF MUTUAL FUND SHARECLASSES THAT PAY SUCH FEES. DURING THE RELEVANT PERIOD,RESPONDENT RECEIVED 12B-1 FEES FOR ADVISING CLIENTS TO INVESTIN OR HOLD SUCH MUTUAL FUND SHARE CLASSES. AS A RESULT OF THECONDUCT, RESPONDENT WILLFULLY VIOLATED SECTION 206(2) OF THEADVISERS ACT.







Initiated By: UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Other


N/A


Docket/Case Number: 3-19560

Principal Product Type: Mutual Fund(s)


SEC IA RELEASE 40-5393, SEPTEMBER 30, 2019: THE SECURITIES ANDEXCHANGE COMMISSION DEEMS IT APPROPRIATE AND IN THE PUBLICINTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESISTPROCEEDINGS BE INSTITUTED AGAINST HILLTOP SECURITIES INC.("RESPONDENT"). ON THE BASIS OF THIS ORDER AND RESPONDENT'SOFFER, THE COMMISSION FINDS THAT THESE PROCEEDINGS ARISE OUTOF BREACHES OF FIDUCIARY DUTY AND INADEQUATE DISCLOSURES BYTHE RESPONDENT IN CONNECTION WITH ITS MUTUAL FUND SHARECLASS SELECTION PRACTICES AND THE FEES IT RECEIVED. AT TIMESDURING THE RELEVANT PERIOD, RESPONDENT PURCHASED,RECOMMENDED, OR HELD FOR ADVISORY CLIENTS MUTUAL FUND SHARECLASSES THAT CHARGED 12B-1 FEES INSTEAD OF LOWER-COST SHARECLASSES OF THE SAME FUNDS FOR WHICH THE CLIENTS WERE ELIGIBLE.RESPONDENT RECEIVED 12B-1 FEES IN CONNECTION WITH THESEINVESTMENTS. RESPONDENT FAILED TO DISCLOSE IN ITS FORM ADV OROTHERWISE THE CONFLICTS OF INTEREST RELATED TO (A) ITS RECEIPTOF 12B-1 FEES, AND/OR (B) ITS SELECTION OF MUTUAL FUND SHARECLASSES THAT PAY SUCH FEES. DURING THE RELEVANT PERIOD,RESPONDENT RECEIVED 12B-1 FEES FOR ADVISING CLIENTS TO INVESTIN OR HOLD SUCH MUTUAL FUND SHARE CLASSES. AS A RESULT OF THECONDUCT, RESPONDENT WILLFULLY VIOLATED SECTION 206(2) OF THEADVISERS ACT.


Resolution:

Other Sanctions Ordered: UNDERTAKINGS AND PREJUDGMENT INTEREST

Sanction Details: THE RESPONDENT SHALL CEASE AND DESIST FROM COMMITTING ORCAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTION206(2) OF THE ADVISERS ACT. RESPONDENT IS CENSURED, SHALL PAYDISGORGEMENT OF $736,497.48 AND PREJUDGMENT INTEREST OF$74,287.92, AND SHALL COMPLY WITH THE UNDERTAKINGS ENUMERATEDIN THE OFFER OF SETTLEMENT.

Regulator Statement RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT WHICH THECOMMISSION HAS DETERMINED TO ACCEPT. IN VIEW OF THE FOREGOING,THE COMMISSION DEEMS IT APPROPRIATE IN THE PUBLIC INTEREST TOIMPOSE THE SANCTIONS AGREED TO IN THE RESPONDENT'S OFFER.ACCORDINGLY, IT IS ORDERED THAT RESPONDENT SHALL CEASE ANDDESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANYFUTURE VIOLATIONS OF SECTION 206(2) OF THE ADVISERS ACT.RESPONDENT IS CENSURED, SHALL PAY DISGORGEMENT OF $736,497.48AND PREJUDGMENT INTEREST OF $74,287.92, AND SHALL COMPLY WITHTHE UNDERTAKINGS ENUMERATED IN THE OFFER OF SETTLEMENT.

RESPONDENT SELF-REPORTED TO THE COMMISSION THE VIOLATIONSDISCUSSED IN THIS ORDER PURSUANT TO THE DIVISION OFENFORCEMENT'S SHARE CLASS SELECTION DISCLOSURE INITIATIVE("SCSD INITIATIVE"). ACCORDINGLY, THIS ORDER AND RESPONDENT'SOFFER ARE BASED ON THE INFORMATION SELF-REPORTED BYRESPONDENT.


Yes

Sanctions Ordered: CensureDisgorgement/RestitutionCease and Desist/Injunction

Order






RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT WHICH THECOMMISSION HAS DETERMINED TO ACCEPT. IN VIEW OF THE FOREGOING,THE COMMISSION DEEMS IT APPROPRIATE IN THE PUBLIC INTEREST TOIMPOSE THE SANCTIONS AGREED TO IN THE RESPONDENT'S OFFER.ACCORDINGLY, IT IS ORDERED THAT RESPONDENT SHALL CEASE ANDDESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANYFUTURE VIOLATIONS OF SECTION 206(2) OF THE ADVISERS ACT.RESPONDENT IS CENSURED, SHALL PAY DISGORGEMENT OF $736,497.48AND PREJUDGMENT INTEREST OF $74,287.92, AND SHALL COMPLY WITHTHE UNDERTAKINGS ENUMERATED IN THE OFFER OF SETTLEMENT.

RESPONDENT SELF-REPORTED TO THE COMMISSION THE VIOLATIONSDISCUSSED IN THIS ORDER PURSUANT TO THE DIVISION OFENFORCEMENT'S SHARE CLASS SELECTION DISCLOSURE INITIATIVE("SCSD INITIATIVE"). ACCORDINGLY, THIS ORDER AND RESPONDENT'SOFFER ARE BASED ON THE INFORMATION SELF-REPORTED BYRESPONDENT.







Allegations: SEC IA RELEASE 40-5393, SEPTEMBER 30, 2019: THE SECURITIES ANDEXCHANGE COMMISSION DEEMS IT APPROPRIATE AND IN THE PUBLICINTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESISTPROCEEDINGS BE INSTITUTED AGAINST HILLTOP SECURITIES INC. ANDITS AFFILIATE, HILLTOP SECURITIES INDEPENDENT NETWORK INC.("RESPONDENTS") ON THE BASIS OF THIS ORDER AND RESPONDENTS'OFFER, THE COMMISSION FINDS THAT THESE PROCEEDINGS ARISE OUTOF BREACHES OF FIDUCIARY DUTY AND INADEQUATE DISCLOSURES BYTHE RESPONDENTS IN CONNECTION WITH THIER MUTUAL FUND SHARECLASS SELECTION PRACTICES AND THE FEES THEY RECEIVED. AT TIMESDURING THE RELEVANT PERIOD, RESPONDENTS PURCHASED,RECOMMENDED, OR HELD FOR ADVISORY CLIENTS MUTUAL FUND SHARECLASSES THAT CHARGED 12B-1 FEES INSTEAD OF LOWER-COST SHARECLASSES OF THE SAME FUNDS FOR WHICH THE CLIENTS WERE ELIGIBLE.RESPONDENTS RECEIVED 12B-1 FEES IN CONNECTION WITH THESEINVESTMENTS. RESPONDENTS FAILED TO DISCLOSE IN THEIR FORM ADVOR OTHERWISE THE CONFLICTS OF INTEREST RELATED TO (A) THEIRRECEIPT OF 12B-1 FEES, AND/OR (B) THEIR SELECTION OF MUTUAL FUNDSHARE CLASSES THAT PAY SUCH FEES. DURING THE RELEVANT PERIOD,RESPONDENTS RECEIVED 12B-1 FEES FOR ADVISING CLIENTS TO INVESTIN OR HOLD SUCH MUTUAL FUND SHARE CLASSES. AS A RESULT OF THECONDUCT, RESPONDENTS WILLFULLY VIOLATED SECTION 206(2) OF THEADVISERS ACT.








Other


N/A



Resolution:

Other Sanctions Ordered: UNDERTAKINGS AND PREJUDGMENT INTEREST

Sanction Details: THE RESPONDENTS SHALL CEASE AND DESIST FROM COMMITTING ORCAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTION206(2) OF THE ADVISERS ACT. RESPONDENT IS CENSURED, SHALLCOLLECTIVELY PAY DISGORGEMENT OF $736,497.48 AND PREJUDGMENTINTEREST OF $74,287.92, AND SHALL COMPLY WITH THE UNDERTAKINGSENUMERATED IN THE OFFER OF SETTLEMENT.

Firm Statement RESPONDENTS HAVE SUBMITTED AN OFFER OF SETTLEMENT WHICH THECOMMISSION HAS DETERMINED TO ACCEPT. IN VIEW OF THE FOREGOING,THE COMMISSION DEEMS IT APPROPRIATE IN THE PUBLIC INTEREST TOIMPOSE THE SANCTIONS AGREED TO IN THE RESPONDENTS' OFFER.ACCORDINGLY, IT IS ORDERED THAT RESPONDENTS SHALL CEASE ANDDESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANYFUTURE VIOLATIONS OF SECTION 206(2) OF THE ADVISERS ACT.RESPONDENTS ARE CENSURED, SHALL COLLECTIVELY PAYDISGORGEMENT OF $736,497.48 AND PREJUDGMENT INTEREST OF$74,287.92, AND SHALL COMPLY WITH THE UNDERTAKINGS ENUMERATEDIN THE OFFER OF SETTLEMENT. RESPONDENTS SELF-REPORTED TO THECOMMISSION THE VIOLATIONS DISCUSSED IN THIS ORDER PURSUANT TOTHE DIVISION OF ENFORCEMENT'S SHARE CLASS SELECTIONDISCLOSURE INITIATIVE ("SCSD INITIATIVE"). ACCORDINGLY, THIS ORDERAND RESPONDENTS' OFFER ARE BASED ON THE INFORMATION SELF-REPORTED BY RESPONDENT.

Sanctions Ordered: CensureDisgorgement/RestitutionCease and Desist/Injunction

Order

Disclosure 3 of 53

i


Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOESTABLISH PROCEDURES REASONABLY DESIGNED TO ASSURE THATCUSTOMERS RECEIVED THE INITIAL MARGIN INTEREST RATEDISCLOSURES AND FAILED TO ESTABLISH, MAINTAIN, AND ENFORCE ASUPERVISORY SYSTEM, INCLUDING WRITTEN SUPERVISORYPROCEDURES, REASONABLY DESIGNED TO ACHIEVE COMPLIANCE. THEFINDINGS STATED THAT IN FACT, MANY CUSTOMERS DID NOT RECEIVETHE INITIAL DISCLOSURE STATING THE ANNUAL RATE OR RATES OFMARGIN INTEREST THAT COULD BE IMPOSED. THE FIRM PROVIDED ITSINTRODUCING BROKER-DEALERS WITH A CUSTOMER INFORMATIONBROCHURE THAT EACH INTRODUCING FIRM WAS OBLIGATED TO PROVIDETO EACH CUSTOMER OPENING A MARGIN ACCOUNT. THE FIRM OPENEDMARGIN ACCOUNTS FOR INTRODUCED CUSTOMERS AND FOR DIRECTCUSTOMERS. AS THE BROKER EXTENDING CREDIT, THE FIRM WASRESPONSIBLE FOR ASSURING THAT THE REQUIRED DISCLOSURE WASMADE. HOWEVER, THE FIRM'S BROCHURE DID NOT PROVIDE THECURRENT BASE RATE OR EXPLAIN THE RELATIONSHIP OF THE BASE RATETO ANY PUBLICLY AVAILABLE RATE, AND THE FIRM DID NOT OTHERWISEASSURE THAT THE CURRENT BASE RATE (OR AN EXPLANATION OF HOWTHE BASE RATE WAS CALCULATED) WAS GIVEN TO CUSTOMERS SEEKINGTO OPEN MARGIN ACCOUNTS. THE FIRM ALSO DID NOT PROVIDE IN ITSBROCHURE THE MARK-UP/MARK-DOWN OR INTRODUCING BROKER-DEALER-SPECIFIC MARK-UP, OR OTHERWISE ASSURE THAT THE MARK-UP/MARK-DOWN OR INTRODUCING BROKER-DEALER-SPECIFIC MARK-UPWAS PROVIDED TO CUSTOMERS.







Initiated By: FINRA





Principal Product Type: Other

Other Product Type(s): UNSPECIFIED SECURITIES

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOESTABLISH PROCEDURES REASONABLY DESIGNED TO ASSURE THATCUSTOMERS RECEIVED THE INITIAL MARGIN INTEREST RATEDISCLOSURES AND FAILED TO ESTABLISH, MAINTAIN, AND ENFORCE ASUPERVISORY SYSTEM, INCLUDING WRITTEN SUPERVISORYPROCEDURES, REASONABLY DESIGNED TO ACHIEVE COMPLIANCE. THEFINDINGS STATED THAT IN FACT, MANY CUSTOMERS DID NOT RECEIVETHE INITIAL DISCLOSURE STATING THE ANNUAL RATE OR RATES OFMARGIN INTEREST THAT COULD BE IMPOSED. THE FIRM PROVIDED ITSINTRODUCING BROKER-DEALERS WITH A CUSTOMER INFORMATIONBROCHURE THAT EACH INTRODUCING FIRM WAS OBLIGATED TO PROVIDETO EACH CUSTOMER OPENING A MARGIN ACCOUNT. THE FIRM OPENEDMARGIN ACCOUNTS FOR INTRODUCED CUSTOMERS AND FOR DIRECTCUSTOMERS. AS THE BROKER EXTENDING CREDIT, THE FIRM WASRESPONSIBLE FOR ASSURING THAT THE REQUIRED DISCLOSURE WASMADE. HOWEVER, THE FIRM'S BROCHURE DID NOT PROVIDE THECURRENT BASE RATE OR EXPLAIN THE RELATIONSHIP OF THE BASE RATETO ANY PUBLICLY AVAILABLE RATE, AND THE FIRM DID NOT OTHERWISEASSURE THAT THE CURRENT BASE RATE (OR AN EXPLANATION OF HOWTHE BASE RATE WAS CALCULATED) WAS GIVEN TO CUSTOMERS SEEKINGTO OPEN MARGIN ACCOUNTS. THE FIRM ALSO DID NOT PROVIDE IN ITSBROCHURE THE MARK-UP/MARK-DOWN OR INTRODUCING BROKER-DEALER-SPECIFIC MARK-UP, OR OTHERWISE ASSURE THAT THE MARK-UP/MARK-DOWN OR INTRODUCING BROKER-DEALER-SPECIFIC MARK-UPWAS PROVIDED TO CUSTOMERS.


Resolution:


No









Sanction Details: THE FIRM WAS CENSURED, FINED $250,000 AND REQUIRED TO SUBMIT TOFINRA A WRITTEN CERTIFICATION THAT IT HAS COMPLETED A REVIEW OFITS SYSTEMS AND PROCEDURES AND AS OF THE DATE OF THECERTIFICATION, THE FIRM'S POLICIES, SYSTEMS AND PROCEDURES AREREASONABLY DESIGNED TO ACHIEVE COMPLIANCE. FINES PAID IN FULLON OCTOBER 10, 2019.


No



Initiated By: FINRA


Censure


MONETARY FINE




Other Product Type(s): MARGIN INTEREST DISCLOSURE

Allegations: HILLTOP FAILED TO ESTABLISH PROCEDURES REASONABLY DESIGNED TOASSURE THAT CUSTOMERS RECEIVED THE INITIAL MARGIN INTERESTRATE DISCLOSURES AND FAILED TO ESTABLISH, MAINTAIN, AND ENFORCEA SUPERVISORY SYSTEM, INCLUDING WRITTEN SUPERVISORYPROCEDURES, REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITHRULE 10B-16(A)(1).



Resolution:








Other Sanctions Ordered:

Sanction Details: CENSURE AND MONETARY FINE OF $250,000

Firm Statement THE FIRM WAS CENSURED, FINED $250,000 AND REQUIRED TO SUBMIT TOFINRA A WRITTEN CERTIFICATION THAT IT HAS COMPLETED A REVIEW OFITS SYSTEMS AND PROCEDURES AND AS OF THE DATE OF THECERTIFICATION, THE FIRM'S POLICIES, SYSTEMS AND PROCEDURES AREREASONABLY DESIGNED TO ACHIEVE COMPLIANCE.


Disclosure 4 of 53

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Initiated By: CBOE BZX EXCHANGE, INC.







Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, HILLTOP SECURITIESINC. (THE "FIRM") CONSENTED TO THE SANCTIONS AND TO THE ENTRY OFFINDINGS THAT IT FAILED TO REPORT REPORTABLE POSITIONS INEXPIRING OPTIONS, MISTAKENLY DELETING THE POSITIONS IN ITS LARGEOPTION POSITION REPORTING SYSTEM (LOPR) SUBMISSIONS THAT WERESET TO EXPIRE ON THE FOLLOWING DAY, OR FAILING TO REPORTPOSITIONS THAT THE FIRM HAD ADDED OR MODIFIED ON THE EXPIRATIONDATE. THE FINDINGS STATED THAT THE FIRM DID NOT HAVE REASONABLEWRITTEN SUPERVISORY PROCEDURES (WSPS) TO ENSURE THE PROPERREPORTING OF OPTIONS POSITIONS TO THE LOPR. SPECIFICALLY, THEFIRM'S WSPS FAILED TO REFERENCE THE SPECIFIC STEPS TO BE TAKENBY THE FIRM WHEN REVIEWING ITS LOPR SUBMISSIONS OR HOW ITSREVIEW OF LOPR SUBMISSIONS IS DOCUMENTED. ADDITIONALLY, THEWSPS DID NOT REFERENCE ANY REVIEW FOR ACCOUNTS TO BEREPORTED TO LOPR THAT ARE POTENTIALLY ACTING IN-CONCERT.ADDITIONALLY, THE FIRM'S WSPS FAILED TO REFERENCE THEFREQUENCY WITH WHICH IT CONDUCTS A REVIEW FOR ACCOUNTS THATARE POTENTIALLY ACTING IN-CONCERT.









Resolution:


Sanction Details: THE FIRM WAS CENSURED AND FINED $37,500.

THIS MATTER BECAME FINAL 20 BUSINESS DAYS AFTER THE ISSUANCE OFTHE DECISION. THEREFORE, THE MATTER BECAME FINAL APRIL 15, 2019.


No




Initiated By: CBOE BZX EXCHANGE, INC.


Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, HILLTOP SECURITIESINC. (THE "FIRM") CONSENTED TO THE SANCTIONS AND TO THE ENTRY OFFINDINGS THAT IT FAILED TO REPORT REPORTABLE POSITIONS INEXPIRING OPTIONS, MISTAKENLY DELETING THE POSITIONS IN ITS LARGEOPTION POSITION REPORTING SYSTEM (LOPR) SUBMISSIONS THAT WERESET TO EXPIRE ON THE FOLLOWING DAY, OR FAILING TO REPORTPOSITIONS THAT THE FIRM HAD ADDED OR MODIFIED ON THE EXPIRATIONDATE. THE FINDINGS STATED THAT THE FIRM DID NOT HAVE REASONABLEWRITTEN SUPERVISORY PROCEDURES (WSPS) TO ENSURE THE PROPERREPORTING OF OPTIONS POSITIONS TO THE LOPR. SPECIFICALLY, THEFIRM'S WSPS FAILED TO REFERENCE THE SPECIFIC STEPS TO BE TAKENBY THE FIRM WHEN REVIEWING ITS LOPR SUBMISSIONS OR HOW ITSREVIEW OF LOPR SUBMISSIONS IS DOCUMENTED. ADDITIONALLY, THEWSPS DID NOT REFERENCE ANY REVIEW FOR ACCOUNTS TO BEREPORTED TO LOPR THAT ARE POTENTIALLY ACTING IN-CONCERT.ADDITIONALLY, THE FIRM'S WSPS FAILED TO REFERENCE THEFREQUENCY WITH WHICH IT CONDUCTS A REVIEW FOR ACCOUNTS THATARE POTENTIALLY ACTING IN-CONCERT.














Resolution:



Firm Statement THE FIRM WAS CENSURED AND FINED $37,500. THIS MATTER WILLBECOME FINAL 20 BUSINESS DAYS AFTER THE ISSUANCE OF THISDECISION. THEREFORE, THIS MATTER WILL BECOME FINAL APRIL 15, 2019.



Disclosure 5 of 53

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Initiated By: FINRA



Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT FOR EACH OFTHE FOUR CALENDAR QUARTERS OF 2015, IT MADE PUBLICLY AVAILABLEA REPORT ON ITS ROUTING OF NON-DIRECTED ORDERS IN COVEREDSECURITIES DURING THOSE QUARTERS. THE FINDINGS STATED THAT INTHESE REPORTS, THE FIRM FAILED TO DISCLOSE THE "MATERIALASPECTS" OF ITS RELATIONSHIP WITH ITS SIGNIFICANT EXECUTIONVENUES AS IT PERTAINS TO PAYMENT FOR ORDER FLOWARRANGEMENTS. THE FIRM IS REQUIRED TO DESCRIBE THE MATERIALTERMS OF THE ARRANGEMENTS, SUCH AS ANY AMOUNTS PER SHARE ORPER ORDER THAT THE FIRM RECEIVES.













Resolution:


Sanction Details: THE FIRM WAS CENSURED AND FINED $10,000. FINE PAID IN FULL 12/8/16.


No




Initiated By: FINRA





Allegations: FOR EACH OF THE FOUR CALENDAR QUARTERS OF 2015, THE FIRM MADEPUBLICLY AVAILABLE A REPORT ON ITS ROUTING OF NON-DIRECTEDORDERS IN COVERED SECURITIES DURING THOSE QUARTERS. IN THESEREPORTS, THE FIRM FAILED TO DISCLOSE THE "MATERIAL ASPECTS" OFITS RELATIONSHIP WITH ITS SIGNIFICANT EXECUTION VENUES AS ITPERTAINS TO PAYMENT FOR ORDER FLOW ARRANGEMENTS. THE FIRM ISREQUIRED TO DESCRIBE THE MATERIAL TERMS OF THE ARRANGEMENTSSUCH AS ANY AMOUNTS PER SHARE OR PER ORDER THAT THE FIRMRECEIVES. THIS CONDUCT CONSTITUTED A VIOLATION OF SEC RULE 606OF REGULATION NMS.












Resolution:


Sanction Details: THE FIRM WAS FINED 10,000.

Firm Statement THE FIRM AMENDED ITS 606 REPORTING TO INCLUDE THE PER SHAREAMOUNTS THAT THE FIRM RECEIVES IN PAYMENT FOR ORDER FLOW.



Disclosure 6 of 53

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Reporting Source: Firm

Initiated By: MISSISSIPPI


Restitution


FIRM SIGNED A MEMORANDUM OF UNDERSTANDING AND AGREED TO PAYRESTITUTION IN THE AMOUNT OF $5,378.50 AND AN ADMINISTRATIVEPENALTY IN THE AMOUNT OF $1,000.00


Docket/Case Number: NONE

Principal Product Type: Debt - Corporate


Allegations: THE STATE OF MISSISSIPPI FOUND THAT THE FIRM, ACTING THROUGH ITSAGENT, JOHN ALSTADT, GUARANTEED THAT A CLIENT WOULD RECEIVESHARES OF COMMON STOCK IN CONNECTION WITH THE PURCHASE OFBONDS. THE STATE FOUND THAT THE FIRM FAILED TO MAINTAIN WRITTENSUPERVISORY PROCEDURES WHICH WOULD HELP TO PREVENT THE FIRMAND ITS AGENTS FROM GUARANTEEING A CUSTOMER SHARES OFCOMMON STOCK IN CONNECTION WITH THE PURCHASE OF BONDS.


Resolution: Other 38©2020 FINRA. All rights reserved. Report about HILLTOP SECURITIES INC.






Resolution:

Other Sanctions Ordered: $5,378.50 RESTITUTION

Sanction Details: NOT APPLICABLE

Sanctions Ordered: Monetary/Fine $1,000.00

Other

Disclosure 7 of 53

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Initiated By: FINRA





Principal Product Type: Debt - Municipal


Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT EFFECTEDMUNICIPAL BOND TRANSACTIONS IN AMOUNTS BELOW THE MINIMUMDENOMINATION SET FOR THE BONDS BEING SOLD. THE FINDINGS STATEDTHAT THE FIRM FAILED TO PROVIDE DISCLOSURE AT THE TIME OF THETRADE TO THE CUSTOMERS NOTING THAT SAID TRANSACTION WASBEING EFFECTED BELOW THE MINIMUM DENOMINATION. WHILE THE FIRMHAD WRITTEN SUPERVISORY PROCEDURES PROHIBITING THE SALE OFMUNICIPAL SECURITIES TO CUSTOMERS BELOW THE MINIMUMDENOMINATION, SUBJECT TO CERTAIN EXCEPTIONS, IT DID NOT HAVEANY SYSTEMS OR CONTROLS IN PLACE TO PROHIBIT SALES BELOW THEMINIMUM DENOMINATION.



Resolution:


No










FINE PAID IN FULL ON JUNE 17, 2016.


No



Initiated By: FINRA


Censure


CENSURE, FINE, AWC





Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT EFFECTEDMUNICIPAL BOND TRANSACTIONS IN AMOUNTS BELOW THE MINIMUMDENOMINATION SET FOR THE BONDS BEING SOLD. THE FINDINGS STATEDTHAT THE FIRM FAILED TO PROVIDE DISCLOSURE AT THE TIME OF THETRADE TO THE CUSTOMERS NOTING THAT SAID TRANSACTION WASBEING EFFECTED BELOW THE MINIMUM DENOMINATION. WHILE THE FIRMHAD WRITTEN SUPERVISORY PROCEDURES PROHIBITING THE SALE OFMUNICIPAL SECURITIES TO CUSTOMERS BELOW THE MINIMUMDENOMINATION, SUBJECT TO CERTAIN EXCEPTIONS, IT DID NOT HAVEANY SYSTEMS OR CONTROLS IN PLACE TO PROHIBIT SALES BELOW THEMINIMUM DENOMINATION.


Resolution: Acceptance, Waiver & Consent(AWC)










Firm Statement WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT EFFECTEDMUNICIPAL BOND TRANSACTIONS IN AMOUNTS BELOW THE MINIMUMDENOMINATION SET FOR THE BONDS BEING SOLD. THE FINDINGS STATEDTHAT THE FIRM FAILED TO PROVIDE DISCLOSURE AT THE TIME OF THETRADE TO THE CUSTOMERS NOTING THAT SAID TRANSACTION WASBEING EFFECTED BELOW THE MINIMUM DENOMINATION. WHILE THE FIRMHAD WRITTEN SUPERVISORY PROCEDURES PROHIBITING THE SALE OFMUNICIPAL SECURITIES TO CUSTOMERS BELOW THE MINIMUMDENOMINATION, SUBJECT TO CERTAIN EXCEPTIONS, IT DID NOT HAVEANY SYSTEMS OR CONTROLS IN PLACE TO PROHIBIT SALES BELOW THEMINIMUM DENOMINATION.


Disclosure 8 of 53

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Allegations: SEC ADMIN RELEASES 33-10023; 34-77025; FEBRUARY 2, 2016: THESECURITIES AND EXCHANGE COMMISSION DEEMS IT APPROPRIATE ANDIN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED AGAINSTHILLTOP SECURITIES INC., FORMERLY, SOUTHWEST SECURITIES, INC.("RESPONDENT"). RESPONDENT WILLFULLY VIOLATED SECTION 17(A)(2)OF THE SECURITIES ACT. THIS MATTER INVOLVES VIOLATIONS OF ANANTIFRAUD PROVISION OF THE FEDERAL SECURITIES LAWS INCONNECTION WITH RESPONDENT'S UNDERWRITING OF CERTAINMUNICIPAL SECURITIES OFFERINGS. RESPONDENT, A REGISTEREDBROKER-DEALER, CONDUCTED INADEQUATE DUE DILIGENCE IN CERTAINOFFERINGS AND AS A RESULT, FAILED TO FORM A REASONABLE BASISFOR BELIEVING THE TRUTHFULNESS OF CERTAIN MATERIALREPRESENTATIONS IN OFFICIAL STATEMENTS ISSUED IN CONNECTIONWITH THOSE OFFERINGS. THIS RESULTED IN RESPONDENT OFFERINGAND SELLING MUNICIPAL SECURITIES ON THE BASIS OF MATERIALLYMISLEADING DISCLOSURE DOCUMENTS. THE VIOLATIONS WERE SELF-REPORTED BY RESPONDENT TO THE COMMISSION PURSUANT TO THEDIVISION OF ENFORCEMENT'S (THE "DIVISION") MUNICIPALITIESCONTINUING DISCLOSURE COOPERATION (MCDC) INITIATIVE.














SEC ADMIN RELEASES 33-10023; 34-77025; FEBRUARY 2, 2016: THESECURITIES AND EXCHANGE COMMISSION DEEMS IT APPROPRIATE ANDIN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED AGAINSTHILLTOP SECURITIES INC., FORMERLY, SOUTHWEST SECURITIES, INC.("RESPONDENT"). RESPONDENT WILLFULLY VIOLATED SECTION 17(A)(2)OF THE SECURITIES ACT. THIS MATTER INVOLVES VIOLATIONS OF ANANTIFRAUD PROVISION OF THE FEDERAL SECURITIES LAWS INCONNECTION WITH RESPONDENT'S UNDERWRITING OF CERTAINMUNICIPAL SECURITIES OFFERINGS. RESPONDENT, A REGISTEREDBROKER-DEALER, CONDUCTED INADEQUATE DUE DILIGENCE IN CERTAINOFFERINGS AND AS A RESULT, FAILED TO FORM A REASONABLE BASISFOR BELIEVING THE TRUTHFULNESS OF CERTAIN MATERIALREPRESENTATIONS IN OFFICIAL STATEMENTS ISSUED IN CONNECTIONWITH THOSE OFFERINGS. THIS RESULTED IN RESPONDENT OFFERINGAND SELLING MUNICIPAL SECURITIES ON THE BASIS OF MATERIALLYMISLEADING DISCLOSURE DOCUMENTS. THE VIOLATIONS WERE SELF-REPORTED BY RESPONDENT TO THE COMMISSION PURSUANT TO THEDIVISION OF ENFORCEMENT'S (THE "DIVISION") MUNICIPALITIESCONTINUING DISCLOSURE COOPERATION (MCDC) INITIATIVE.


Resolution:

Other Sanctions Ordered: UNDERTAKINGS

Sanction Details: THE RESPONDENT SHALL CEASE AND DESIST FROM COMMITTING ORCAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTION17(A)(2)OF THE SECURITIES ACT, PAY A CIVIL MONEY PENALTY IN THEAMOUNT OF $360,000 AND COMPLY WITH THE UNDERTAKINGSENUMERATED IN THE OFFER OF SETTLEMENT.

Regulator Statement IN ANTICIPATION OF THE INSTITUTION OF THESE PROCEEDINGS,RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT (THE "OFFER")WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. SOLELY FOR THEPURPOSE OF THESE PROCEEDINGS AND ANY OTHER PROCEEDINGSBROUGHT BY OR ON BEHALF OF THE COMMISSION, OR TO WHICH THECOMMISSION IS A PARTY, AND WITHOUT ADMITTING OR DENYING THEFINDINGS, EXCEPT AS TO THE COMMISSION'S JURISDICTION OVER IT ANDTHE SUBJECT MATTER OF THESE PROCEEDINGS, WHICH ARE ADMITTED,RESPONDENT CONSENTS TO THE ENTRY OF THIS ORDER INSTITUTINGADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TOSECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 15(B) OF THESECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSINGREMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER. IN VIEW OF THEFOREGOING, THE COMMISSION DEEMS IT APPROPRIATE AND IN THEPUBLIC INTEREST TO IMPOSE THE SANCTIONS AGREED TO INRESPONDENT'S OFFER. ACCORDINGLY, IT IS HEREBY ORDERED THATRESPONDENT SHALL, CEASE AND DESIST FROM COMMITTING ORCAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF 17(A)(2)OFTHE SECURITIES ACT; WITHIN TEN (10) DAYS OF THE ENTRY OF THISORDER, PAY A CIVIL MONEY PENALTY IN THE AMOUNT OF $360,000 TO THESECURITIES AND EXCHANGE COMMISSION; AND RETAIN AN INDEPENDENTCONSULTANT TO CONDUCT A REVIEW OF RESPONDENT'S POLICIES ANDPROCEDURES AS THEY RELATE TO MUNICIPAL SECURITIESUNDERWRITING DUE DILIGENCE.


Yes

Sanctions Ordered: Monetary/Fine $360,000.00Cease and Desist/Injunction

Order






IN ANTICIPATION OF THE INSTITUTION OF THESE PROCEEDINGS,RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT (THE "OFFER")WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. SOLELY FOR THEPURPOSE OF THESE PROCEEDINGS AND ANY OTHER PROCEEDINGSBROUGHT BY OR ON BEHALF OF THE COMMISSION, OR TO WHICH THECOMMISSION IS A PARTY, AND WITHOUT ADMITTING OR DENYING THEFINDINGS, EXCEPT AS TO THE COMMISSION'S JURISDICTION OVER IT ANDTHE SUBJECT MATTER OF THESE PROCEEDINGS, WHICH ARE ADMITTED,RESPONDENT CONSENTS TO THE ENTRY OF THIS ORDER INSTITUTINGADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TOSECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 15(B) OF THESECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSINGREMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER. IN VIEW OF THEFOREGOING, THE COMMISSION DEEMS IT APPROPRIATE AND IN THEPUBLIC INTEREST TO IMPOSE THE SANCTIONS AGREED TO INRESPONDENT'S OFFER. ACCORDINGLY, IT IS HEREBY ORDERED THATRESPONDENT SHALL, CEASE AND DESIST FROM COMMITTING ORCAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF 17(A)(2)OFTHE SECURITIES ACT; WITHIN TEN (10) DAYS OF THE ENTRY OF THISORDER, PAY A CIVIL MONEY PENALTY IN THE AMOUNT OF $360,000 TO THESECURITIES AND EXCHANGE COMMISSION; AND RETAIN AN INDEPENDENTCONSULTANT TO CONDUCT A REVIEW OF RESPONDENT'S POLICIES ANDPROCEDURES AS THEY RELATE TO MUNICIPAL SECURITIESUNDERWRITING DUE DILIGENCE.








Allegations: SEC ADMIN RELEASES 33-10023; 34-77025; FEBRUARY 2, 2016: THESECURITIES AND EXCHANGE COMMISSION DEEMS IT APPROPRIATE ANDIN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED AGAINSTHILLTOP SECURITIES INC., FORMERLY, SOUTHWEST SECURITIES, INC.("RESPONDENT"). RESPONDENT WILLFULLY VIOLATED SECTION 17(A)(2)OF THE SECURITIES ACT. THIS MATTER INVOLVES VIOLATIONS OF ANANTIFRAUD PROVISION OF THE FEDERAL SECURITIES LAWS INCONNECTION WITH RESPONDENT'S UNDERWRITING OF CERTAINMUNICIPAL SECURITIES OFFERINGS. RESPONDENT, A REGISTEREDBROKER-DEALER, CONDUCTED INADEQUATE DUE DILIGENCE IN CERTAINOFFERINGS AND AS A RESULT, FAILED TO FORM A REASONABLE BASISFOR BELIEVING THE TRUTHFULNESS OF CERTAIN MATERIALREPRESENTATIONS IN OFFICIAL STATEMENTS ISSUED IN CONNECTIONWITH THOSE OFFERINGS. THIS RESULTED IN RESPONDENT OFFERINGAND SELLING MUNICIPAL SECURITIES ON THE BASIS OF MATERIALLYMISLEADING DISCLOSURE DOCUMENTS. THE VIOLATIONS WERE SELF-REPORTED BY RESPONDENT TO THE COMMISSION PURSUANT TO THEDIVISION OF ENFORCEMENT'S (THE "DIVISION") MUNICIPALITIESCONTINUING DISCLOSURE COOPERATION (MCDC) INITIATIVE.










Resolution:


Sanction Details: THE RESPONDENT SHALL CEASE AND DESIST FROM COMMITTING ORCAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTION17(A)(2)OF THE SECURITIES ACT, PAY A CIVIL MONEY PENALTY IN THEAMOUNT OF $360,000 AND COMPLY WITH THE UNDERTAKINGSENUMERATED IN THE OFFER OF SETTLEMENT.

Firm Statement HILLTOP SECURITIES, ALONG WITH A NUMBER OF OTHER MUNICIPALSECURITIES UNDERWRITERS AND ISSUERS, VOLUNTARILY PARTICIPATEDIN THE SEC'S MUNICIPAL CONTINUING DISLCOUSRE COOPERATION(MCDC) INITATIVE. AS PART OF THE INITATIVE, UNDERWRITERS ANDISSUERS OF OFFERINGS IN WHICH THE FINAL OFFICIAL STATEMENTCONTAINED MATERIALLY INACCURATE STATEMENTS REGARDING ANISSUERS PRIOR COMPLIANCE WITH CONTINUING DISCLOSUREOBLIGATIONS WERE GIVEN AN OPPORTUNITY TO SELF REPORT THESEINACCURACIES TO THE SEC.

THE SECURITIES AND EXCHANGE COMMISSION DEEMS IT APPROPRIATEAND IN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED AGAINSTHILLTOP SECURITIES INC., FORMERLY, SOUTHWEST SECURITIES, INC.("RESPONDENT"). RESPONDENT WILLFULLY VIOLATED SECTION 17(A)(2)OF THE SECURITIES ACT. THIS MATTER INVOLVES VIOLATIONS OF ANANTIFRAUD PROVISION OF THE FEDERAL SECURITIES LAWS INCONNECTION WITH RESPONDENT'S UNDERWRITING OF CERTAINMUNICIPAL SECURITIES OFFERINGS. RESPONDENT, A REGISTEREDBROKER-DEALER, CONDUCTED INADEQUATE DUE DILIGENCE IN CERTAINOFFERINGS AND AS A RESULT, FAILED TO FORM A REASONABLE BASISFOR BELIEVING THE TRUTHFULNESS OF CERTAIN MATERIALREPRESENTATIONS IN OFFICIAL STATEMENTS ISSUED IN CONNECTIONWITH THOSE OFFERINGS. THIS RESULTED IN RESPONDENT OFFERINGAND SELLING MUNICIPAL SECURITIES ON THE BASIS OF MATERIALLYMISLEADING DISCLOSURE DOCUMENTS. THE VIOLATIONS WERE SELF-REPORTED BY RESPONDENT TO THE COMMISSION PURSUANT TO THEDIVISION OF ENFORCEMENT'S (THE "DIVISION") MUNICIPALITIESCONTINUING DISCLOSURE COOPERATION (MCDC) INITIATIVE.

Sanctions Ordered: Monetary/Fine $360,000.00Cease and Desist/Injunction

Order






HILLTOP SECURITIES, ALONG WITH A NUMBER OF OTHER MUNICIPALSECURITIES UNDERWRITERS AND ISSUERS, VOLUNTARILY PARTICIPATEDIN THE SEC'S MUNICIPAL CONTINUING DISLCOUSRE COOPERATION(MCDC) INITATIVE. AS PART OF THE INITATIVE, UNDERWRITERS ANDISSUERS OF OFFERINGS IN WHICH THE FINAL OFFICIAL STATEMENTCONTAINED MATERIALLY INACCURATE STATEMENTS REGARDING ANISSUERS PRIOR COMPLIANCE WITH CONTINUING DISCLOSUREOBLIGATIONS WERE GIVEN AN OPPORTUNITY TO SELF REPORT THESEINACCURACIES TO THE SEC.

THE SECURITIES AND EXCHANGE COMMISSION DEEMS IT APPROPRIATEAND IN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED AGAINSTHILLTOP SECURITIES INC., FORMERLY, SOUTHWEST SECURITIES, INC.("RESPONDENT"). RESPONDENT WILLFULLY VIOLATED SECTION 17(A)(2)OF THE SECURITIES ACT. THIS MATTER INVOLVES VIOLATIONS OF ANANTIFRAUD PROVISION OF THE FEDERAL SECURITIES LAWS INCONNECTION WITH RESPONDENT'S UNDERWRITING OF CERTAINMUNICIPAL SECURITIES OFFERINGS. RESPONDENT, A REGISTEREDBROKER-DEALER, CONDUCTED INADEQUATE DUE DILIGENCE IN CERTAINOFFERINGS AND AS A RESULT, FAILED TO FORM A REASONABLE BASISFOR BELIEVING THE TRUTHFULNESS OF CERTAIN MATERIALREPRESENTATIONS IN OFFICIAL STATEMENTS ISSUED IN CONNECTIONWITH THOSE OFFERINGS. THIS RESULTED IN RESPONDENT OFFERINGAND SELLING MUNICIPAL SECURITIES ON THE BASIS OF MATERIALLYMISLEADING DISCLOSURE DOCUMENTS. THE VIOLATIONS WERE SELF-REPORTED BY RESPONDENT TO THE COMMISSION PURSUANT TO THEDIVISION OF ENFORCEMENT'S (THE "DIVISION") MUNICIPALITIESCONTINUING DISCLOSURE COOPERATION (MCDC) INITIATIVE.

Disclosure 9 of 53

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Initiated By: FINRA







Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED,WITHIN 30 SECONDS AFTER EXECUTION, TO TRANSMIT LAST SALEREPORTS OF TRANSACTIONS IN DESIGNATED SECURITIES TO THEFINRA/NASDAQ TRADE REPORTING FACILITY (FNTRF) AND IT FAILED TOREPORT THE CORRECT TIME OF EXECUTION IN LAST SALE REPORTS OFTRANSACTIONS IN DESIGNATED SECURITIES TO THE FNTRF. THEFINDINGS STATED THAT THE FIRM'S SUPERVISORY SYSTEM DID NOTPROVIDE FOR SUPERVISION REASONABLY DESIGNED TO ACHIEVECOMPLIANCE WITH RESPECT TO THE APPLICABLE SECURITIES LAWS ANDREGULATIONS AND FINRA RULES CONCERNING THE TIMELY SUBMISSIONOF ACCURATE TRADE REPORTS TO THE FNTRF. SPECIFICALLY, THE FIRM'SSUPERVISORY SYSTEM DID NOT INCLUDE WRITTEN SUPERVISORYPROCEDURES PROVIDING FOR THE SUPERVISORY STEPS TO BE TAKENTO ENSURE TIMELY SUBMISSION OF ACCURATE TRADE REPORTS TO THEFNTRF AND A STATEMENT AS TO HOW THE COMPLETION OF THE STEPSINCLUDED IN THE WRITTEN SUPERVISORY PROCEDURES SHOULD BEDOCUMENTED.



Resolution:


No








Other Sanctions Ordered: UNDERTAKING: REQUIRED TO REVISE THE FIRM'S WRITTENSUPERVISORY PROCEDURES

Sanction Details: THE FIRM WAS CENSURED, FINED $17,500 AND UNDERTAKES TO REVISEITS WRITTEN SUPERVISORY PROCEDURES.FINE PAID IN FULL ON NOVEMBER 6, 2014.


No



Initiated By: FINRA





Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED,WITHIN 30 SECONDS AFTER EXECUTION, TO TRANSMIT LAST SALEREPORTS OF TRANSACTIONS IN DESIGNATED SECURITIES TO THEFINRA/NASDAQ TRADE REPORTING FACILITY (FNTRF) AND IT FAILED TOREPORT THE CORRECT TIME OF EXECUTION IN LAST SALE REPORTS OFTRANSACTIONS IN DESIGNATED SECURITIES TO THE FNTRF. THEFINDINGS STATED THAT THE FIRM'S SUPERVISORY SYSTEM DID NOTPROVIDE FOR SUPERVISION REASONABLY DESIGNED TO ACHIEVECOMPLIANCE WITH RESPECT TO THE APPLICABLE SECURITIES LAWS ANDREGULATIONS AND FINRA RULES CONCERNING THE TIMELY SUBMISSIONOF ACCURATE TRADE REPORTS TO THE FNTRF. SPECIFICALLY, THE FIRM'SSUPERVISORY SYSTEM DID NOT INCLUDE WRITTEN SUPERVISORYPROCEDURES PROVIDING FOR THE SUPERVISORY STEPS TO BE TAKENTO ENSURE TIMELY SUBMISSION OF ACCURATE TRADE REPORTS TO THEFNTRF AND A STATEMENT AS TO HOW THE COMPLETION OF THE STEPSINCLUDED IN THE WRITTEN SUPERVISORY PROCEDURES SHOULD BEDOCUMENTED.












Resolution:

Other Sanctions Ordered: UNDERTAKING: REQUIRED TO REVISE THE FIRM'S WRITTENSUPERVISORY PROCEDURES

Sanction Details: THE FIRM WAS CENSURED, FINED $17,500 AND UNDERTAKES TO REVISEITS WRITTEN SUPERVISORY PROCEDURES.



Disclosure 10 of 53

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Initiated By: FINRA






Other Product Type(s): SECURITIZED PRODUCTS

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOREPORT TO THE TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)THE CORRECT TIME OF TRADE EXECUTION FOR TRANSACTIONS INTRACE-ELIGIBLE SECURITIZED PRODUCTS AND FAILED TO SHOW THECORRECT TIME OF EXECUTION ON THE MEMORANDA OF BROKERAGEORDERS.












Sanction Details: SEE ABOVE

Regulator Statement FINE PAID IN FULL ON JULY 22, 2014.


No



Initiated By: FINRA




CENSURE




Other Product Type(s): SECURITIZED PRODUCTS

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TOREPORT TO THE TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)THE CORRECT TIME OF TRADE EXECUTION FOR TRANSACTIONS INTRACE-ELIGIBLE SECURITIZED PRODUCTS AND FAILED TO SHOW THECORRECT TIME OF EXECUTION ON THE MEMORANDA OF BROKERAGEORDERS.



Resolution:










Sanction Details: SEE ABOVE.


Disclosure 11 of 53

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Initiated By: FINRA





Principal Product Type: Equity Listed (Common & Preferred Stock)


Allegations: SEC RULE 204(A)(1) OF REGULATION SHO - SOUTHWEST SECURITIES, INC.HAD FAIL-TO-DELIVER POSITIONS AT A REGISTERED CLEARING AGENCY INAN EQUITY SECURITY THAT RESULTED FROM A LONG SALE AND DID NOTCLOSE OUT THE FAIL-TO-DELIVER POSITIONS BY PURCHASING ORBORROWING SECURITIES OF LIKE KIND AND QUANTITY WITHIN THE TIMEFRAME PRESCRIBED BY RULE 204(A)(1) OF REGULATION SHO.



Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED AND FINED $10,000.


No









WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED AND FINED $10,000.


Initiated By: FINRA







Allegations: SEC RULE 204(A)(1) OF REGULATION SHO - SOUTHWEST SECURITIES, INC.HAD FAIL-TO-DELIVER POSITIONS AT A REGISTERED CLEARING AGENCY INAN EQUITY SECURITY THAT RESULTED FROM A LONG SALE AND DID NOTCLOSE OUT THE FAIL-TO-DELIVER POSITIONS BY PURCHASING ORBORROWING SECURITIES OF LIKE KIND AND QUANTITY WITHIN THE TIMEFRAME PRESCRIBED BY RULE 204(A)(1) OF REGULATION SHO.



Resolution:





Disclosure 12 of 53

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Allegations: FINRA RULES 2010, 6380A = SOUTHWEST SECURITIES, INC. FAILED, WITHIN90 SECOND AFTER EXECUTION, TO TRANSMIT TO THE FINRA/NASDAQTRADE REPORTING FACILITY (FNTRF) LAST SALE REPORTS OFTRANSACTIONS IN DESIGNATED SECURITIES. THIS CONDUCTCONSTITUTES SEPARATE AND DISTINCT VIOLATIONS OF FINRA RULE6380A AND A PATTERN OR PRACTICE OF LATE REPORTING WITHOUTEXCEPTIONAL CIRCUMSTANCES IN VIOLATION OF FINRA RULE 2010.








Initiated By: FINRA






Other Product Type(s): DESIGNATED SECURITIES

FINRA RULES 2010, 6380A = SOUTHWEST SECURITIES, INC. FAILED, WITHIN90 SECOND AFTER EXECUTION, TO TRANSMIT TO THE FINRA/NASDAQTRADE REPORTING FACILITY (FNTRF) LAST SALE REPORTS OFTRANSACTIONS IN DESIGNATED SECURITIES. THIS CONDUCTCONSTITUTES SEPARATE AND DISTINCT VIOLATIONS OF FINRA RULE6380A AND A PATTERN OR PRACTICE OF LATE REPORTING WITHOUTEXCEPTIONAL CIRCUMSTANCES IN VIOLATION OF FINRA RULE 2010.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS FINED $5,000. FINE PAID IN FULL ONSEPTEMBER 13, 2013.


No




Allegations: FINRA RULES 2010, 6380A = SOUTHWEST SECURITIES, INC. FAILED, WITHIN90 SECOND AFTER EXECUTION, TO TRANSMIT TO THE FINRA/NASDAQTRADE REPORTING FACILITY (FNTRF) LAST SALE REPORTS OFTRANSACTIONS IN DESIGNATED SECURITIES. THIS CONDUCTCONSTITUTES SEPARATE AND DISTINCT VIOLATIONS OF FINRA RULE6380A AND A PATTERN OR PRACTICE OF LATE REPORTING WITHOUTEXCEPTIONAL CIRCUMSTANCES IN VIOLATION OF FINRA RULE 2010.







Initiated By: FINRA







Other Product Type(s): DESIGNATED SECURITIES

FINRA RULES 2010, 6380A = SOUTHWEST SECURITIES, INC. FAILED, WITHIN90 SECOND AFTER EXECUTION, TO TRANSMIT TO THE FINRA/NASDAQTRADE REPORTING FACILITY (FNTRF) LAST SALE REPORTS OFTRANSACTIONS IN DESIGNATED SECURITIES. THIS CONDUCTCONSTITUTES SEPARATE AND DISTINCT VIOLATIONS OF FINRA RULE6380A AND A PATTERN OR PRACTICE OF LATE REPORTING WITHOUTEXCEPTIONAL CIRCUMSTANCES IN VIOLATION OF FINRA RULE 2010.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS FINED $5,000.



Disclosure 13 of 53

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Allegations: FINRA RULES 2010, 6730(A), MSRB RULES G-17, G-27, G-30(A) -SOUTHWEST SECURITIES, INC. PURCHASED MUNICIPAL SECURITIES FORITS OWN ACCOUNT FROM CUSTOMERS AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO CUSTOMERS AT AN AGGREGATEPRICE (INCLUDING ANY MARKDOWN OR MARKUP) THAT WAS NOT FAIRAND REASONABLE, TAKING INTO CONSIDERATION ALL RELEVANTFACTORS, INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER ORMUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OF THESECURITIES AT THE TIME OF THE TRANSACTION AND OF ANY SECURITIESEXCHANGED OR TRADED IN CONNECTION WITH THE TRANSACTION, THEEXPENSE INVOLVED IN EFFECTING THE TRANSACTION, THE FACT THATTHE BROKER, DEALER OR MUNICIPAL SECURITIES DEALER IS ENTITLEDTO A PROFIT, AND THE TOTAL DOLLAR AMOUNT OF THE TRANSACTION.THE FIRM'S SUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND MSRB RULES, CONCERNING FAIRAND REASONABLE PRICING TO CUSTOMERS IN MUNICIPAL BONDTRANSACTIONS. THE FIRM FAILED TO REPORT TO THE TRADE REPORTINGAND COMPLIANCE ENGINE (TRACE) SOME TRANSACTIONS IN TRACE-ELIGIBLE SECURITIES WITHIN 15 MINUTES OF EXECUTION TIME. THISCONDUCT CONSTITUTES SEPARATE AND DISTINCT VIOLATIONS OF FINRARULE 6730(A) AND A PATTERN OR PRACTICE OF LATE REPORTINGWITHOUT EXCEPTIONAL CIRCUMSTANCES IN VIOLATION OF FINRA RULE2010.







Initiated By: FINRA






Other Product Type(s): TRACE-ELIGIBLE SECURITIES

FINRA RULES 2010, 6730(A), MSRB RULES G-17, G-27, G-30(A) -SOUTHWEST SECURITIES, INC. PURCHASED MUNICIPAL SECURITIES FORITS OWN ACCOUNT FROM CUSTOMERS AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO CUSTOMERS AT AN AGGREGATEPRICE (INCLUDING ANY MARKDOWN OR MARKUP) THAT WAS NOT FAIRAND REASONABLE, TAKING INTO CONSIDERATION ALL RELEVANTFACTORS, INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER ORMUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OF THESECURITIES AT THE TIME OF THE TRANSACTION AND OF ANY SECURITIESEXCHANGED OR TRADED IN CONNECTION WITH THE TRANSACTION, THEEXPENSE INVOLVED IN EFFECTING THE TRANSACTION, THE FACT THATTHE BROKER, DEALER OR MUNICIPAL SECURITIES DEALER IS ENTITLEDTO A PROFIT, AND THE TOTAL DOLLAR AMOUNT OF THE TRANSACTION.THE FIRM'S SUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND MSRB RULES, CONCERNING FAIRAND REASONABLE PRICING TO CUSTOMERS IN MUNICIPAL BONDTRANSACTIONS. THE FIRM FAILED TO REPORT TO THE TRADE REPORTINGAND COMPLIANCE ENGINE (TRACE) SOME TRANSACTIONS IN TRACE-ELIGIBLE SECURITIES WITHIN 15 MINUTES OF EXECUTION TIME. THISCONDUCT CONSTITUTES SEPARATE AND DISTINCT VIOLATIONS OF FINRARULE 6730(A) AND A PATTERN OR PRACTICE OF LATE REPORTINGWITHOUT EXCEPTIONAL CIRCUMSTANCES IN VIOLATION OF FINRA RULE2010.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $77,500,OF WHICH $70,000 ISFOR MSRB RULE VIOLATIONS, ORDERED TO PAY $32,167.14, PLUSINTEREST, IN RESTITUTION TO CUSTOMERS, AND REQUIRED TO REVISEITS WRITTEN SUPERVISORY PROCEDURES REGARDING FAIR ANDREASONABLE PRICING TO CUSTOMERS IN MUNICIPAL BONDTRANSACTIONS WITHIN 30 BUSINESS DAYS OF ACCEPTANCE OF THIS AWCBY THE NAC. A REGISTERED FIRM PRINCIPAL SHALL SUBMITSATISFACTORY PROOF OF PAYMENT OF THE RESTITUTION, OR OFREASONABLE AND DOCUMENTED EFFORTS UNDERTAKEN TO EFFECTRESTITUTION, TO FINRA NO LATER THAN 120 DAYS AFTER ACCEPTANCEOF THIS AWC. ANY UNDISTRIBUTED RESTITUTION AND INTEREST SHALLBE FORWARDED TO THE APPROPRIATE ESCHEAT, UNCLAIMED PROPERTYOR ABANDONED PROPERTY FUND FOR THE STATE IN WHICH THECUSTOMER LAST RESIDED. FINE PAID IN FULL ON APRIL 9, 2013


No

Sanctions Ordered: CensureMonetary/Fine $77,500.00Disgorgement/Restitution








WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $77,500,OF WHICH $70,000 ISFOR MSRB RULE VIOLATIONS, ORDERED TO PAY $32,167.14, PLUSINTEREST, IN RESTITUTION TO CUSTOMERS, AND REQUIRED TO REVISEITS WRITTEN SUPERVISORY PROCEDURES REGARDING FAIR ANDREASONABLE PRICING TO CUSTOMERS IN MUNICIPAL BONDTRANSACTIONS WITHIN 30 BUSINESS DAYS OF ACCEPTANCE OF THIS AWCBY THE NAC. A REGISTERED FIRM PRINCIPAL SHALL SUBMITSATISFACTORY PROOF OF PAYMENT OF THE RESTITUTION, OR OFREASONABLE AND DOCUMENTED EFFORTS UNDERTAKEN TO EFFECTRESTITUTION, TO FINRA NO LATER THAN 120 DAYS AFTER ACCEPTANCEOF THIS AWC. ANY UNDISTRIBUTED RESTITUTION AND INTEREST SHALLBE FORWARDED TO THE APPROPRIATE ESCHEAT, UNCLAIMED PROPERTYOR ABANDONED PROPERTY FUND FOR THE STATE IN WHICH THECUSTOMER LAST RESIDED. FINE PAID IN FULL ON APRIL 9, 2013


Initiated By: FINRA






Allegations: FINRA RULES 2010, 6730(A), MSRB RULES G-17, G-27, G-30(A) -SOUTHWEST SECURITIES, INC. PURCHASED MUNICIPAL SECURITIES FORITS OWN ACCOUNT FROM CUSTOMERS AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO CUSTOMERS AT AN AGGREGATEPRICE (INCLUDING ANY MARKDOWN OR MARKUP) THAT WAS NOT FAIRAND REASONABLE, TAKING INTO CONSIDERATION ALL RELEVANTFACTORS, INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER ORMUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OF THESECURITIES AT THE TIME OF THE TRANSACTION AND OF ANY SECURITIESEXCHANGED OR TRADED IN CONNECTION WITH THE TRANSACTION, THEEXPENSE INVOLVED IN EFFECTING THE TRANSACTION, THE FACT THATTHE BROKER, DEALER OR MUNICIPAL SECURITIES DEALER IS ENTITLEDTO A PROFIT, AND THE TOTAL DOLLAR AMOUNT OF THE TRANSACTION.THE FIRM'S SUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND MSRB RULES, CONCERNING FAIRAND REASONABLE PRICING TO CUSTOMERS IN MUNICIPAL BONDTRANSACTIONS. THE FIRM FAILED TO REPORT TO THE TRADE REPORTINGAND COMPLIANCE ENGINE (TRACE) SOME TRANSACTIONS IN TRACE-ELIGIBLE SECURITIES WITHIN 15 MINUTES OF EXECUTION TIME. THISCONDUCT CONSTITUTES SEPARATE AND DISTINCT VIOLATIONS OF FINRARULE 6730(A) AND A PATTERN OR PRACTICE OF LATE REPORTINGWITHOUT EXCEPTIONAL CIRCUMSTANCES IN VIOLATION OF FINRA RULE2010.











Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $77,500,OF WHICH $70,000 ISFOR MSRB RULE VIOLATIONS, ORDERED TO PAY $32,167.14, PLUSINTEREST, IN RESTITUTION TO CUSTOMERS, AND REQUIRED TO REVISEITS WRITTEN SUPERVISORY PROCEDURES REGARDING FAIR ANDREASONABLE PRICING TO CUSTOMERS IN MUNICIPAL BONDTRANSACTIONS WITHIN 30 BUSINESS DAYS OF ACCEPTANCE OF THIS AWCBY THE NAC. A REGISTERED FIRM PRINCIPAL SHALL SUBMITSATISFACTORY PROOF OF PAYMENT OF THE RESTITUTION, OR OFREASONABLE AND DOCUMENTED EFFORTS UNDERTAKEN TO EFFECTRESTITUTION, TO FINRA NO LATER THAN 120 DAYS AFTER ACCEPTANCEOF THIS AWC. ANY UNDISTRIBUTED RESTITUTION AND INTEREST SHALLBE FORWARDED TO THE APPROPRIATE ESCHEAT, UNCLAIMED PROPERTYOR ABANDONED PROPERTY FUND FOR THE STATE IN WHICH THECUSTOMER LAST RESIDED.



Disclosure 14 of 53

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Allegations: MSRB RULES G-32(A)(I), G-32(B)(I), G-32(B)(II):THE FIRM FAILED TOPROVIDE THE OFFICIAL STATEMENT (OS) IN A MUNICIPAL SECURITIESOFFERING TO CUSTOMERS WHOSE TRANSACTIONS SETTLED ON ACERTAIN DAY; THERE WERE SEVERAL RELEVANT TRANSACTIONSTOTALING $13,525,000 THAT SETTLED ON THAT DAY. THE FIRM FAILED TOTIMELY SUBMIT THE OS TO THE ELECTRONIC MUNICIPAL MARKET ACCESS(EMMA) SYSTEM IN SOME MUNICIPAL OFFERINGS, AND FILED ANINACCURATE OS IN AN OFFERING. THE FIRM FAILED TO TIMELY SUBMITTHE ADVANCE REFUNDING DOCUMENT (ARD) TO EMMA IN SOMEMUNICIPAL OFFERINGS.







Initiated By: FINRA


Other


N/A





MSRB RULES G-32(A)(I), G-32(B)(I), G-32(B)(II):THE FIRM FAILED TOPROVIDE THE OFFICIAL STATEMENT (OS) IN A MUNICIPAL SECURITIESOFFERING TO CUSTOMERS WHOSE TRANSACTIONS SETTLED ON ACERTAIN DAY; THERE WERE SEVERAL RELEVANT TRANSACTIONSTOTALING $13,525,000 THAT SETTLED ON THAT DAY. THE FIRM FAILED TOTIMELY SUBMIT THE OS TO THE ELECTRONIC MUNICIPAL MARKET ACCESS(EMMA) SYSTEM IN SOME MUNICIPAL OFFERINGS, AND FILED ANINACCURATE OS IN AN OFFERING. THE FIRM FAILED TO TIMELY SUBMITTHE ADVANCE REFUNDING DOCUMENT (ARD) TO EMMA IN SOMEMUNICIPAL OFFERINGS.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS,THEREFORE THE FIRM IS CENSURED AND FINED $85,000. FINE PAID INFULL ON 11/19/2012.


No




Allegations: MSRB RULES G-32(A)(I), G-32(B)(I), G-32(B)(II):THE FIRM FAILED TOPROVIDE THE OFFICIAL STATEMENT (OS) IN A MUNICIPAL SECURITIESOFFERING TO CUSTOMERS WHOSE TRANSACTIONS SETTLED ON ACERTAIN DAY; THERE WERE SEVERAL RELEVANT TRANSACTIONSTOTALING $13,525,000 THAT SETTLED ON THAT DAY. THE FIRM FAILED TOTIMELY SUBMIT THE OS TO THE ELECTRONIC MUNICIPAL MARKET ACCESS(EMMA) SYSTEM IN SOME MUNICIPAL OFFERINGS, AND FILED ANINACCURATE OS IN AN OFFERING. THE FIRM FAILED TO TIMELY SUBMITTHE ADVANCE REFUNDING DOCUMENT (ARD) TO EMMA IN SOMEMUNICIPAL OFFERINGS.








Initiated By: FINRA


Other


N/A





MSRB RULES G-32(A)(I), G-32(B)(I), G-32(B)(II):THE FIRM FAILED TOPROVIDE THE OFFICIAL STATEMENT (OS) IN A MUNICIPAL SECURITIESOFFERING TO CUSTOMERS WHOSE TRANSACTIONS SETTLED ON ACERTAIN DAY; THERE WERE SEVERAL RELEVANT TRANSACTIONSTOTALING $13,525,000 THAT SETTLED ON THAT DAY. THE FIRM FAILED TOTIMELY SUBMIT THE OS TO THE ELECTRONIC MUNICIPAL MARKET ACCESS(EMMA) SYSTEM IN SOME MUNICIPAL OFFERINGS, AND FILED ANINACCURATE OS IN AN OFFERING. THE FIRM FAILED TO TIMELY SUBMITTHE ADVANCE REFUNDING DOCUMENT (ARD) TO EMMA IN SOMEMUNICIPAL OFFERINGS.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS,THEREFORE THE FIRM IS CENSURED AND FINED $85,000.



Disclosure 15 of 53

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Initiated By: STATE OF ILLINOIS, ILLINOIS SECURITIES DEPARTMENT


Revocation


NOTICE OF HEARING



URL for Regulatory Action:



Allegations: INCOMPLETE RESPONSE TO SUBPOENA ISSUED BY THE DEPARTMENT









NOTICE OF HEARING


Resolution:

Other Sanctions Ordered: PAYMENT OF COSTS OF INVESTIGATION: $7,500.00

Sanction Details: CONSENT ORDER

Regulator Statement NOTICE OF HEARING WAS ISSUED MAY 7, 2012. THE HEARING ISSCHEDULED FOR JULY 18, 2012. CONSENT ORDER WAS ISSUEDNOVEMBER 19, 2012. CONTACT 785-4947


No


Consent


Initiated By: STATE OF ILLINOIS, ILLINOIS SECURITIES DEPARTMENT


Revocation


NOTICE OF HEARING





Allegations: INCOMPLETE RESPONSE TO SUBPOENA ISSUED BY THE DEPARTMENT.



Resolution:



Consent







Sanction Details: CONSENT ORDER

Firm Statement NOTICE OF HEARING WAS ISSUED MAY 7, 2012. THE HEARING ISSCHEDULED FOR JULY 18, 2012. CONTACT 785-4947. CONSENT ORDERWAS ISSUED NOVEMBER 19, 2012. CONTACT 785-4947

Disclosure 16 of 53

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Initiated By: FINRA



CENSURE, FINE AND RESTITUTION.





Allegations: FINRA STAFF ALLEGES THAT ML STERN AND CO., (NOW KNOWN ASSOUTHWEST SECURITIES, INC.) PURCHASED MUNICIPAL SECURITIES FORITS OWN ACCOUNT FROM A CUSTOMER AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO A CUSTOMER AT AN AGGREGATEPRICE (INCLUDING ANY MARK-DOWN OR MARK-UP) THAT WAS NOT FAIRAND REASONABLE, TAKING INTO CONSIDERATION ALL RELEVANTFACTORS, INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER,OR MUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OFTHE SECURITIES AT THE TIME OF THE TRANSACTION AND OF ANYSECURITIES EXCHANGED OR TRADED IN CONNECTION WITH THETRANSACTION, THE EXPENSE INVOLVED IN EFFECTING THETRANSACTION, THE FACT THAT THE BROKER, DEALER, OR MUNICIPALSECURITIES DEALER IS ENTITLED TO A PROFIT, AND THE TOTAL DOLLARAMOUNT OF THE TRANSACTION.



Resolution:








Other Sanctions Ordered: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM AGREED TO ACENSURE, ADMINISTRATIVE FINE OF $38,000.00, AND RESTITUTION OF$19,655.36 PLUS INTEREST TO THE INVESTORS IMPACTED BY THEALLEGED CONDUCT.

Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $38,000.00 FOR VIOLATIONSOF MSRB RULES AND REQUIRED TO PAY $19,655.36, PLUS INTEREST, INRESTITUTION TO INVESTORS. A REGISTERED PRINCIPAL SHALL SUBMITSATISFACTORY PROOF OF PAYMENT OF THE RESTITUTION, OR OFREASONABLE AND DOCUMENTED EFFORTS UNDERTAKEN TO EFFECTRESTITUTION TO FINRA NO LATER THAN 120 DAYS AFTER ACCEPTANCEOF THIS AWC. ANY UNDISTRIBUTED RESTITUTION AND INTEREST SHALLBE FORWARDED TO THE APPROPRIATE ESCHEAT, UNCLAIMED PROPERTYOR ABANDONED PROPERTY FUND FOR THE STATE IN WHICH THECUSTOMER LAST RESIDED.

CensureMonetary/Fine $38,000.00Disgorgement/Restitution

Disclosure 17 of 53

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Allegations: EXCHANGE ACT RULE 15C3-3, NASD RULE 2110: THE FIRM FAILED TO TAKEPROMPT AND APPROPRIATE ACTION TO RESOLVE SECURITIES DEFICITSAND FAILED TO COMPLY WITH REQUIREMENTS CONCERNINGPOSSESSION OR CONTROL OF SECURITIES. THE FIRM DID NOTPROMPTLY OBTAIN POSSESSION OR CONTROL OF FIVE SECURITIES INWHICH IT HAD DEFICITS. REGARDLESS OF HOW THE DEFICITS AT ISSUEOCCURRED, EXCHANGE ACT RULE 15C3-3 REQUIRED THAT THE FIRMTAKE TIMELY STEPS TO ELIMINATE THEM. THOSE STEPS INCLUDEDISSUING NOTICES TO OTHER FIRMS TO WHOM THE FIRM HAD LOANEDSECURITIES IN WHICH DEFICITS OCCURRED AND REQUESTING THAT THEBORROWING FIRMS RETURN A SUFFICIENT NUMBER OF SHARES OFTHOSE SECURITIES TO COVER THE DEFICITS; MAKING ATTEMPTS TOBORROW THE SECURITIES AND DOCUMENTING THOSE ATTEMPTS;AND/OR BUYING THE SECURITIES IN THE MARKET. IN THESE INSTANCES,THE FIRM WAS REQUIRED TO TAKE ACTION TO ELIMINATE SUCH DEFICITS,INCLUDING STEPS PRESCRIBED IN EXCHANGE ACT RULEINTERPRETATION 15C3-3(D)(1)/101. INSTEAD, THE FIRM FAILED TO ISSUESTOCK LOAN RECALL NOTICES ON A TIMELY BASIS FOR A SUFFICIENTNUMBER OF SHARES TO COVER THE SIZE OF THE DEFICITS, AND TOMAKE CONTINUING STOCK BORROW ATTEMPTS DURING THE EXISTENCEOF THE DEFICITS. IN ADDITION, TO COMPLY WITH RULE 15C3-3(D), THEFIRM ALSO NEEDED TO KEEP APPROPRIATE RECORDS OF THE ACTIONS ITTOOK TO ELIMINATE SECURITIES DEFICITS, WHETHER ATTEMPTING TOBORROW SECURITIES, RECALLING LOANED SECURITIES OR MAKINGPURCHASES OF SECURITIES IN THE MARKET (KNOWN AS "BUY-INS"). THEFIRM'S TWO DOCUMENTED BORROW ATTEMPTS WERE INADEQUATE TOCOMPLY WITH POSSESSION OR CONTROL REQUIREMENTS. IN ANOTHERINSTANCE, THE FIRM FAILED TO DOCUMENT WHETHER IT HADATTEMPTED TO BORROW SECURITIES OR TAKEN OTHER APPROPRIATEACTION TO OBTAIN POSSESSION OR CONTROL OF SECURITY SHARESWHEN THERE WAS AN EXISTING DEFICIT IN THAT SECURITY.







Initiated By: FINRA


Other


N/A





EXCHANGE ACT RULE 15C3-3, NASD RULE 2110: THE FIRM FAILED TO TAKEPROMPT AND APPROPRIATE ACTION TO RESOLVE SECURITIES DEFICITSAND FAILED TO COMPLY WITH REQUIREMENTS CONCERNINGPOSSESSION OR CONTROL OF SECURITIES. THE FIRM DID NOTPROMPTLY OBTAIN POSSESSION OR CONTROL OF FIVE SECURITIES INWHICH IT HAD DEFICITS. REGARDLESS OF HOW THE DEFICITS AT ISSUEOCCURRED, EXCHANGE ACT RULE 15C3-3 REQUIRED THAT THE FIRMTAKE TIMELY STEPS TO ELIMINATE THEM. THOSE STEPS INCLUDEDISSUING NOTICES TO OTHER FIRMS TO WHOM THE FIRM HAD LOANEDSECURITIES IN WHICH DEFICITS OCCURRED AND REQUESTING THAT THEBORROWING FIRMS RETURN A SUFFICIENT NUMBER OF SHARES OFTHOSE SECURITIES TO COVER THE DEFICITS; MAKING ATTEMPTS TOBORROW THE SECURITIES AND DOCUMENTING THOSE ATTEMPTS;AND/OR BUYING THE SECURITIES IN THE MARKET. IN THESE INSTANCES,THE FIRM WAS REQUIRED TO TAKE ACTION TO ELIMINATE SUCH DEFICITS,INCLUDING STEPS PRESCRIBED IN EXCHANGE ACT RULEINTERPRETATION 15C3-3(D)(1)/101. INSTEAD, THE FIRM FAILED TO ISSUESTOCK LOAN RECALL NOTICES ON A TIMELY BASIS FOR A SUFFICIENTNUMBER OF SHARES TO COVER THE SIZE OF THE DEFICITS, AND TOMAKE CONTINUING STOCK BORROW ATTEMPTS DURING THE EXISTENCEOF THE DEFICITS. IN ADDITION, TO COMPLY WITH RULE 15C3-3(D), THEFIRM ALSO NEEDED TO KEEP APPROPRIATE RECORDS OF THE ACTIONS ITTOOK TO ELIMINATE SECURITIES DEFICITS, WHETHER ATTEMPTING TOBORROW SECURITIES, RECALLING LOANED SECURITIES OR MAKINGPURCHASES OF SECURITIES IN THE MARKET (KNOWN AS "BUY-INS"). THEFIRM'S TWO DOCUMENTED BORROW ATTEMPTS WERE INADEQUATE TOCOMPLY WITH POSSESSION OR CONTROL REQUIREMENTS. IN ANOTHERINSTANCE, THE FIRM FAILED TO DOCUMENT WHETHER IT HADATTEMPTED TO BORROW SECURITIES OR TAKEN OTHER APPROPRIATEACTION TO OBTAIN POSSESSION OR CONTROL OF SECURITY SHARESWHEN THERE WAS AN EXISTING DEFICIT IN THAT SECURITY.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE IT IS CENSURED AND FINED $50,000.


No












Initiated By: FINRA


Other















Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE IT IS CENSURED AND FINED $50,000.



Disclosure 18 of 53

i


Allegations: FINRA RULE 2010, NASD RULES 2110, 3010(A), 3010(B): SOUTHWESTSECURITIES (SOUTHWEST) HAD SUPERVISORY AND OPERATIONALDEFICIENCIES WITH RESPECT TO ITS CLEARING SERVICES DEPARTMENT,CORRESPONDENT REVIEW COMMITTEE (REVIEW COMMITTEE), AND RISKMANAGEMENT PRACTICES FOR ITS CLEARING CORRESPONDENTS. THEDEFICIENCIES IN THE CLEARING SERVICES DEPARTMENT INCLUDED,AMONG OTHER THINGS, FAILURE TO HAVE WRITTEN SUPERVISORY ANDOPERATIONAL SYSTEMS AND PROCEDURES, FAILURE TO HAVE ADEQUATEWRITTEN JOB DESCRIPTIONS AND PERFORM ADEQUATE JOB TRAINING,FAILURE TO PERFORM ADEQUATE DUE DILIGENCE AND/OR RISKASSESSMENT WITH RESPECT TO PROSPECTIVE CORRESPONDENTS, ANDFAILURE TO HAVE PROCEDURES FOR THE ESCALATION OF SIGNIFICANTEVENTS INVOLVING CORRESPONDENTS. AS A RESULT, CLEARINGSERVICES EMPLOYEES DID NOT HAVE A CLEAR UNDERSTANDING OFCERTAIN INDIVIDUAL FUNCTIONS AND/OR RESPONSIBILITIES, ANDFUNCTIONS WHICH SHOULD HAVE BEEN PERFORMED WERE NOT, BASEDON MISUNDERSTANDINGS AS TO WHICH CLEARING SERVICE EMPLOYEESWAS RESPONSIBLE TO PERFORM THAT FUNCTION. SOUTHWEST DID NOTHAVE WRITTEN PROCEDURES WITH REGARD TO DUE DILIGENCE TO BEPERFORMED REGARDING POTENTIAL CORRESPONDENT CLEARINGCLIENTS; RATHER, IT REQUIRED THE POTENTIAL CLIENT TO FILL OUT AQUESTIONNAIRE AND SUPPLY CERTAIN DOCUMENTATION, AND USED ACHECKLIST OF DOCUMENTS AND INFORMATION TO BE OBTAINED FROMTHE POTENTIAL CLIENT. ALTHOUGH THE FIRM'S PERSONNEL HADDISCRETION TO OMIT INFORMATION FROM THE CHECKLIST BECAUSE OFTHE LACK OF PROCEDURES, THERE WAS NO METHOD OF ENSURINGTHAT SUCH OMISSION OR DEVIATIONS WERE REASONABLE ANDAPPROPRIATE. THE DEFICIENCIES WITH RESPECT TO SOUTHWEST'SREVIEW COMMITTEE INCLUDED, AMONG OTHER THINGS, FAILURE TOHAVE WRITTEN POLICIES AND PROCEDURES FOR THE REVIEWCOMMITTEE, AND FAILURE BY THE REVIEW COMMITTEE TO PERFORMADEQUATE DUE DILIGENCE AND/OR RISK ASSESSMENT WITH RESPECT TOPROSPECTIVE CORRESPONDENTS. SOUTHWEST FAILED TO HAVEADEQUATE SYSTEMS AND PROCEDURES TO IDENTIFY AND MANAGECERTAIN RISKS ASSOCIATED WITH ITS CORRESPONDENT RELATIONSHIPSAND THE TRADING OF THOSE CORRESPONDENTS, AND THEREFOREFAILED TO ADEQUATELY ASSESS AND MANAGE THE RISKS ASSOCIATEDWITH ITS CORRESPONDENTS, BOTH AT THE INITIATION OF SUCH ARELATIONSHIP AND ON A CONTINUING BASIS THEREAFTER. AMONGOTHER THINGS, SOUTHWEST FAILED TO BE AWARE OF THE BROKER-DEALERS WITH WHICH IT HAD A CORRESPONDENT RELATIONSHIP, ANDFAILED TO NOTIFY NATIONAL SECURITIES CLEARING CORPORATION(NSCC) AND THE NASDAQ RISK MANAGEMENT SYSTEM OF THETERMINATION OF CORRESPONDENT RELATIONSHIPS AND THEREFOREEFFECTIVELY TERMINATE ITS CLEARING LIABILITY; PREMATURELYACCEPTED CLEARING LIABILITY FOR A CORRESPONDENT BY NOTIFYINGNSCC IT WAS PREPARED TO CLEAR FOR THE CORRESPONDENT WHEN INFACT IT WAS NOT SO PREPARED; FAILED TO RECOGNIZE ITSCORRESPONDENTS' ABILITY TO TRADE AWAY FROM IT BASED ON THECORRESPONDENTS' EXCHANGE MEMBERSHIP, AGREEMENTS ANDARRANGEMENTS; AND FAILED TO BE AWARE OF EXTERNAL PROCEDURESAND ESTABLISH INTERNAL PROCEDURES TO TERMINATE ON AN INTRA-DAY BASIS A CORRESPONDENT RELATIONSHIP AND THEREFORE THECORRESPONDENT'S ABILITY TO TRADE. SUCH NOTICE WOULD PREVENTTHE CORRESPONDENT FROM ENTERING ANY FURTHER TRADES,PREVENTS TRADES TO WHICH THE CORRESPONDENT WAS A COUNTER-PARTY FROM BEING REPORTED TO THE TRADE REPORTING FACILITY(TRF), AND WOULD ALLOW SOUTHWEST TO TERMINATE ITS FINANCIALRESPONSIBILITY FOR THE CORRESPONDENT'S TRADING ONCE THETERMINATION WAS GIVEN EFFECT AT NSCC. SOUTHWEST FAILED TO HAVEPROCEDURES TO ESTABLISH AND FAILED TO ESTABLISH REASONABLENASDAQ AUTOMATED CONFIRMATION OF TRANSACTIONS (ACT) RISKMANAGEMENT LIMITS, AND FAILED TO HAVE PROCEDURES FORMONITORING AND RESPONDING TO NASDAQ ACT RISK MANAGEMENTALERTS. [CONTINUED IN COMMENT]







Initiated By: FINRA


Other


N/A





FINRA RULE 2010, NASD RULES 2110, 3010(A), 3010(B): SOUTHWESTSECURITIES (SOUTHWEST) HAD SUPERVISORY AND OPERATIONALDEFICIENCIES WITH RESPECT TO ITS CLEARING SERVICES DEPARTMENT,CORRESPONDENT REVIEW COMMITTEE (REVIEW COMMITTEE), AND RISKMANAGEMENT PRACTICES FOR ITS CLEARING CORRESPONDENTS. THEDEFICIENCIES IN THE CLEARING SERVICES DEPARTMENT INCLUDED,AMONG OTHER THINGS, FAILURE TO HAVE WRITTEN SUPERVISORY ANDOPERATIONAL SYSTEMS AND PROCEDURES, FAILURE TO HAVE ADEQUATEWRITTEN JOB DESCRIPTIONS AND PERFORM ADEQUATE JOB TRAINING,FAILURE TO PERFORM ADEQUATE DUE DILIGENCE AND/OR RISKASSESSMENT WITH RESPECT TO PROSPECTIVE CORRESPONDENTS, ANDFAILURE TO HAVE PROCEDURES FOR THE ESCALATION OF SIGNIFICANTEVENTS INVOLVING CORRESPONDENTS. AS A RESULT, CLEARINGSERVICES EMPLOYEES DID NOT HAVE A CLEAR UNDERSTANDING OFCERTAIN INDIVIDUAL FUNCTIONS AND/OR RESPONSIBILITIES, ANDFUNCTIONS WHICH SHOULD HAVE BEEN PERFORMED WERE NOT, BASEDON MISUNDERSTANDINGS AS TO WHICH CLEARING SERVICE EMPLOYEESWAS RESPONSIBLE TO PERFORM THAT FUNCTION. SOUTHWEST DID NOTHAVE WRITTEN PROCEDURES WITH REGARD TO DUE DILIGENCE TO BEPERFORMED REGARDING POTENTIAL CORRESPONDENT CLEARINGCLIENTS; RATHER, IT REQUIRED THE POTENTIAL CLIENT TO FILL OUT AQUESTIONNAIRE AND SUPPLY CERTAIN DOCUMENTATION, AND USED ACHECKLIST OF DOCUMENTS AND INFORMATION TO BE OBTAINED FROMTHE POTENTIAL CLIENT. ALTHOUGH THE FIRM'S PERSONNEL HADDISCRETION TO OMIT INFORMATION FROM THE CHECKLIST BECAUSE OFTHE LACK OF PROCEDURES, THERE WAS NO METHOD OF ENSURINGTHAT SUCH OMISSION OR DEVIATIONS WERE REASONABLE ANDAPPROPRIATE. THE DEFICIENCIES WITH RESPECT TO SOUTHWEST'SREVIEW COMMITTEE INCLUDED, AMONG OTHER THINGS, FAILURE TOHAVE WRITTEN POLICIES AND PROCEDURES FOR THE REVIEWCOMMITTEE, AND FAILURE BY THE REVIEW COMMITTEE TO PERFORMADEQUATE DUE DILIGENCE AND/OR RISK ASSESSMENT WITH RESPECT TOPROSPECTIVE CORRESPONDENTS. SOUTHWEST FAILED TO HAVEADEQUATE SYSTEMS AND PROCEDURES TO IDENTIFY AND MANAGECERTAIN RISKS ASSOCIATED WITH ITS CORRESPONDENT RELATIONSHIPSAND THE TRADING OF THOSE CORRESPONDENTS, AND THEREFOREFAILED TO ADEQUATELY ASSESS AND MANAGE THE RISKS ASSOCIATEDWITH ITS CORRESPONDENTS, BOTH AT THE INITIATION OF SUCH ARELATIONSHIP AND ON A CONTINUING BASIS THEREAFTER. AMONGOTHER THINGS, SOUTHWEST FAILED TO BE AWARE OF THE BROKER-DEALERS WITH WHICH IT HAD A CORRESPONDENT RELATIONSHIP, ANDFAILED TO NOTIFY NATIONAL SECURITIES CLEARING CORPORATION(NSCC) AND THE NASDAQ RISK MANAGEMENT SYSTEM OF THETERMINATION OF CORRESPONDENT RELATIONSHIPS AND THEREFOREEFFECTIVELY TERMINATE ITS CLEARING LIABILITY; PREMATURELYACCEPTED CLEARING LIABILITY FOR A CORRESPONDENT BY NOTIFYINGNSCC IT WAS PREPARED TO CLEAR FOR THE CORRESPONDENT WHEN INFACT IT WAS NOT SO PREPARED; FAILED TO RECOGNIZE ITSCORRESPONDENTS' ABILITY TO TRADE AWAY FROM IT BASED ON THECORRESPONDENTS' EXCHANGE MEMBERSHIP, AGREEMENTS ANDARRANGEMENTS; AND FAILED TO BE AWARE OF EXTERNAL PROCEDURESAND ESTABLISH INTERNAL PROCEDURES TO TERMINATE ON AN INTRA-DAY BASIS A CORRESPONDENT RELATIONSHIP AND THEREFORE THECORRESPONDENT'S ABILITY TO TRADE. SUCH NOTICE WOULD PREVENTTHE CORRESPONDENT FROM ENTERING ANY FURTHER TRADES,PREVENTS TRADES TO WHICH THE CORRESPONDENT WAS A COUNTER-PARTY FROM BEING REPORTED TO THE TRADE REPORTING FACILITY(TRF), AND WOULD ALLOW SOUTHWEST TO TERMINATE ITS FINANCIALRESPONSIBILITY FOR THE CORRESPONDENT'S TRADING ONCE THETERMINATION WAS GIVEN EFFECT AT NSCC. SOUTHWEST FAILED TO HAVEPROCEDURES TO ESTABLISH AND FAILED TO ESTABLISH REASONABLENASDAQ AUTOMATED CONFIRMATION OF TRANSACTIONS (ACT) RISKMANAGEMENT LIMITS, AND FAILED TO HAVE PROCEDURES FORMONITORING AND RESPONDING TO NASDAQ ACT RISK MANAGEMENTALERTS. [CONTINUED IN COMMENT]








N/A


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, SOUTHWESTCONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OFFINDINGS; THEREFORE IT IS CENSURED, FINED $650,000 ANDUNDERTAKES TO (1) DESIGNATE A RISK MANAGEMENT OFFICER WITHINTHE FIRM WHOSE PRIMARY RESPONSIBILITY SHALL BE IDENTIFICATIONAND MANAGEMENT OF THE RISK ASSOCIATED WITH THE FIRM'SCORRESPONDENT CLEARING SERVICES BUSINESS; AND (2) WITHIN 30BUSINESS DAYS OF NOTIFICATION OF ACCEPTANCE OF THIS AWC, AREGISTERED PRINCIPAL OF THE FIRM SHALL SUBMIT TO FINRA A SIGNED,DATED LETTER, GIVING THE FOLLOWING INFORMATION: (A) A REFERENCETO THIS MATTER; (B) A REPRESENTATION THAT THE FIRM HASDESIGNATED THE ABOVE-REFERENCED RISK MANAGEMENT OFFICER; (C)THE NAME OF THAT PERSON, AND THE DATE THE PERSON BEGAN THEROLE; (D) A REPRESENTATION THAT THE FIRM HAD REVISED ITS WRITTENSUPERVISORY AND OPERATIONAL PROCEDURES TO ADDRESS THEDEFICIENCIES DESCRIBED HEREIN; AND (E) THE DATE(S) THE REVISEDPROCEDURES WERE IMPLEMENTED.

Regulator Statement [CONTINUED FROM ALLEGATIONS]: IN PART, AS A RESULT OF THE ABOVEMENTIONED PROCEDURAL, DUE DILIGENCE, AND OTHER DEFICIENCIESAND VIOLATIVE BEHAVIOR, IN OR ABOUT JUNE 2009, SOUTHWESTENTERED INTO A CORRESPONDENT RELATIONSHIP WITH A FIRM WITHOUTHAVING PERFORMED ADEQUATE DUE DILIGENCE REGARDING THEOWNER OF THE FIRM AND/OR THE FIRM. DESPITE HAVING INFORMATIONIN ITS POSSESSION AND BEING ALERTED TO THE SHARE VOLUME ANDDOLLAR LEVELS OF THE FIRM'S RECENT TRADING, THE CLEARINGSERVICES DEPARTMENT DID NOT INQUIRE FURTHER REGARDING THEFIRM'S TRADING HISTORY; IT SHOULD HAVE CONSIDERED THE RISKMANAGEMENT IMPLICATIONS OF THE TRADING PRACTICES. SOUTHWESTPREMATURELY NOTIFIED NSCC THAT IS WAS PREPARED TO STARTCLEARING FOR THE FIRM WHICH ENABLED THE FIRM TO START TRADING.WITHOUT EVEN A TRADING ACCOUNT OR TRADING DEPOSIT HAVING BEENESTABLISHED AT SOUTHWEST, THE FIRM PURCHASED AND SOLD SHARESOF A NYSE LISTED STOCK. NASDAQ RISK MANAGEMENT ALERTS NOTIFIEDSOUTHWEST OF THE FIRM'S TRADING IN EXCESS OF THE $100,000THRESHOLD SET BY SOUTHWEST, BUT SOUTHWEST FAILED TO TIMELYRESPOND TO SUCH ALERTS OR TERMINATE ITS CLEARING RELATIONSHIPWITH THE FIRM ON THAT TRADING DAY. AFTER THE FIRM ESTABLISHED ATRADING ACCOUNT AT SOUTHWEST AND MADE A TRADING DEPOSIT, THEFIRM ENGAGED IN FURTHER TRADING EVEN THOUGH SOUTHWEST HADSTILL NOT ESTABLISHED A METHOD TO RECEIVE THE INFORMATIONNECESSARY FOR SOUTHWEST TO CLEAR ITS TRADES. THE FIRM'SSECOND DAY OF TRADING RESULTED IN AN UNSECURED LOSS IN ITSACCOUNT AT THE FIRM IN EXCESS OF $6.3 MILLION.


No








[CONTINUED FROM ALLEGATIONS]: IN PART, AS A RESULT OF THE ABOVEMENTIONED PROCEDURAL, DUE DILIGENCE, AND OTHER DEFICIENCIESAND VIOLATIVE BEHAVIOR, IN OR ABOUT JUNE 2009, SOUTHWESTENTERED INTO A CORRESPONDENT RELATIONSHIP WITH A FIRM WITHOUTHAVING PERFORMED ADEQUATE DUE DILIGENCE REGARDING THEOWNER OF THE FIRM AND/OR THE FIRM. DESPITE HAVING INFORMATIONIN ITS POSSESSION AND BEING ALERTED TO THE SHARE VOLUME ANDDOLLAR LEVELS OF THE FIRM'S RECENT TRADING, THE CLEARINGSERVICES DEPARTMENT DID NOT INQUIRE FURTHER REGARDING THEFIRM'S TRADING HISTORY; IT SHOULD HAVE CONSIDERED THE RISKMANAGEMENT IMPLICATIONS OF THE TRADING PRACTICES. SOUTHWESTPREMATURELY NOTIFIED NSCC THAT IS WAS PREPARED TO STARTCLEARING FOR THE FIRM WHICH ENABLED THE FIRM TO START TRADING.WITHOUT EVEN A TRADING ACCOUNT OR TRADING DEPOSIT HAVING BEENESTABLISHED AT SOUTHWEST, THE FIRM PURCHASED AND SOLD SHARESOF A NYSE LISTED STOCK. NASDAQ RISK MANAGEMENT ALERTS NOTIFIEDSOUTHWEST OF THE FIRM'S TRADING IN EXCESS OF THE $100,000THRESHOLD SET BY SOUTHWEST, BUT SOUTHWEST FAILED TO TIMELYRESPOND TO SUCH ALERTS OR TERMINATE ITS CLEARING RELATIONSHIPWITH THE FIRM ON THAT TRADING DAY. AFTER THE FIRM ESTABLISHED ATRADING ACCOUNT AT SOUTHWEST AND MADE A TRADING DEPOSIT, THEFIRM ENGAGED IN FURTHER TRADING EVEN THOUGH SOUTHWEST HADSTILL NOT ESTABLISHED A METHOD TO RECEIVE THE INFORMATIONNECESSARY FOR SOUTHWEST TO CLEAR ITS TRADES. THE FIRM'SSECOND DAY OF TRADING RESULTED IN AN UNSECURED LOSS IN ITSACCOUNT AT THE FIRM IN EXCESS OF $6.3 MILLION.


Allegations: FINRA RULE 2010, NASD RULES 2110, 3010(A), 3010(B): SOUTHWESTSECURITIES (SOUTHWEST) HAD SUPERVISORY AND OPERATIONALDEFICIENCIES WITH RESPECT TO ITS CLEARING SERVICES DEPARTMENT,CORRESPONDENT REVIEW COMMITTEE (REVIEW COMMITTEE), AND RISKMANAGEMENT PRACTICES FOR ITS CLEARING CORRESPONDENTS. THEDEFICIENCIES IN THE CLEARING SERVICES DEPARTMENT INCLUDED,AMONG OTHER THINGS, FAILURE TO HAVE WRITTEN SUPERVISORY ANDOPERATIONAL SYSTEMS AND PROCEDURES, FAILURE TO HAVE ADEQUATEWRITTEN JOB DESCRIPTIONS AND PERFORM ADEQUATE JOB TRAINING,FAILURE TO PERFORM ADEQUATE DUE DILIGENCE AND/OR RISKASSESSMENT WITH RESPECT TO PROSPECTIVE CORRESPONDENTS, ANDFAILURE TO HAVE PROCEDURES FOR THE ESCALATION OF SIGNIFICANTEVENTS INVOLVING CORRESPONDENTS. AS A RESULT, CLEARINGSERVICES EMPLOYEES DID NOT HAVE A CLEAR UNDERSTANDING OFCERTAIN INDIVIDUAL FUNCTIONS AND/OR RESPONSIBILITIES, ANDFUNCTIONS WHICH SHOULD HAVE BEEN PERFORMED WERE NOT, BASEDON MISUNDERSTANDINGS AS TO WHICH CLEARING SERVICE EMPLOYEESWAS RESPONSIBLE TO PERFORM THAT FUNCTION. SOUTHWEST DID NOTHAVE WRITTEN PROCEDURES WITH REGARD TO DUE DILIGENCE TO BEPERFORMED REGARDING POTENTIAL CORRESPONDENT CLEARINGCLIENTS; RATHER, IT REQUIRED THE POTENTIAL CLIENT TO FILL OUT AQUESTIONNAIRE AND SUPPLY CERTAIN DOCUMENTATION, AND USED ACHECKLIST OF DOCUMENTS AND INFORMATION TO BE OBTAINED FROMTHE POTENTIAL CLIENT. ALTHOUGH THE FIRM'S PERSONNEL HADDISCRETION TO OMIT INFORMATION FROM THE CHECKLIST BECAUSE OFTHE LACK OF PROCEDURES, THERE WAS NO METHOD OF ENSURINGTHAT SUCH OMISSION OR DEVIATIONS WERE REASONABLE ANDAPPROPRIATE. THE DEFICIENCIES WITH RESPECT TO SOUTHWEST'SREVIEW COMMITTEE INCLUDED, AMONG OTHER THINGS, FAILURE TOHAVE WRITTEN POLICIES AND PROCEDURES FOR THE REVIEWCOMMITTEE, AND FAILURE BY THE REVIEW COMMITTEE TO PERFORMADEQUATE DUE DILIGENCE AND/OR RISK ASSESSMENT WITH RESPECT TOPROSPECTIVE CORRESPONDENTS. SOUTHWEST FAILED TO HAVEADEQUATE SYSTEMS AND PROCEDURES TO IDENTIFY AND MANAGECERTAIN RISKS ASSOCIATED WITH ITS CORRESPONDENT RELATIONSHIPSAND THE TRADING OF THOSE CORRESPONDENTS, AND THEREFOREFAILED TO ADEQUATELY ASSESS AND MANAGE THE RISKS ASSOCIATEDWITH ITS CORRESPONDENTS, BOTH AT THE INITIATION OF SUCH ARELATIONSHIP AND ON A CONTINUING BASIS THEREAFTER. AMONGOTHER THINGS, SOUTHWEST FAILED TO BE AWARE OF THE BROKER-DEALERS WITH WHICH IT HAD A CORRESPONDENT RELATIONSHIP, ANDFAILED TO NOTIFY NATIONAL SECURITIES CLEARING CORPORATION(NSCC) AND THE NASDAQ RISK MANAGEMENT SYSTEM OF THETERMINATION OF CORRESPONDENT RELATIONSHIPS AND THEREFOREEFFECTIVELY TERMINATE ITS CLEARING LIABILITY; PREMATURELYACCEPTED CLEARING LIABILITY FOR A CORRESPONDENT BY NOTIFYINGNSCC IT WAS PREPARED TO CLEAR FOR THE CORRESPONDENT WHEN INFACT IT WAS NOT SO PREPARED; FAILED TO RECOGNIZE ITSCORRESPONDENTS' ABILITY TO TRADE AWAY FROM IT BASED ON THECORRESPONDENTS' EXCHANGE MEMBERSHIP, AGREEMENTS ANDARRANGEMENTS; AND FAILED TO BE AWARE OF EXTERNAL PROCEDURESAND ESTABLISH INTERNAL PROCEDURES TO TERMINATE ON AN INTRA-DAY BASIS A CORRESPONDENT RELATIONSHIP AND THEREFORE THECORRESPONDENT'S ABILITY TO TRADE. SUCH NOTICE WOULD PREVENTTHE CORRESPONDENT FROM ENTERING ANY FURTHER TRADES,PREVENTS TRADES TO WHICH THE CORRESPONDENT WAS A COUNTER-PARTY FROM BEING REPORTED TO THE TRADE REPORTING FACILITY(TRF), AND WOULD ALLOW SOUTHWEST TO TERMINATE ITS FINANCIALRESPONSIBILITY FOR THE CORRESPONDENT'S TRADING ONCE THETERMINATION WAS GIVEN EFFECT AT NSCC. SOUTHWEST FAILED TO HAVEPROCEDURES TO ESTABLISH AND FAILED TO ESTABLISH REASONABLENASDAQ AUTOMATED CONFIRMATION OF TRANSACTIONS (ACT) RISKMANAGEMENT LIMITS, AND FAILED TO HAVE PROCEDURES FORMONITORING AND RESPONDING TO NASDAQ ACT RISK MANAGEMENTALERTS. [CONTINUED IN ITEM 13]







Initiated By: FINRA




FINRA RULE 2010, NASD RULES 2110, 3010(A), 3010(B): SOUTHWESTSECURITIES (SOUTHWEST) HAD SUPERVISORY AND OPERATIONALDEFICIENCIES WITH RESPECT TO ITS CLEARING SERVICES DEPARTMENT,CORRESPONDENT REVIEW COMMITTEE (REVIEW COMMITTEE), AND RISKMANAGEMENT PRACTICES FOR ITS CLEARING CORRESPONDENTS. THEDEFICIENCIES IN THE CLEARING SERVICES DEPARTMENT INCLUDED,AMONG OTHER THINGS, FAILURE TO HAVE WRITTEN SUPERVISORY ANDOPERATIONAL SYSTEMS AND PROCEDURES, FAILURE TO HAVE ADEQUATEWRITTEN JOB DESCRIPTIONS AND PERFORM ADEQUATE JOB TRAINING,FAILURE TO PERFORM ADEQUATE DUE DILIGENCE AND/OR RISKASSESSMENT WITH RESPECT TO PROSPECTIVE CORRESPONDENTS, ANDFAILURE TO HAVE PROCEDURES FOR THE ESCALATION OF SIGNIFICANTEVENTS INVOLVING CORRESPONDENTS. AS A RESULT, CLEARINGSERVICES EMPLOYEES DID NOT HAVE A CLEAR UNDERSTANDING OFCERTAIN INDIVIDUAL FUNCTIONS AND/OR RESPONSIBILITIES, ANDFUNCTIONS WHICH SHOULD HAVE BEEN PERFORMED WERE NOT, BASEDON MISUNDERSTANDINGS AS TO WHICH CLEARING SERVICE EMPLOYEESWAS RESPONSIBLE TO PERFORM THAT FUNCTION. SOUTHWEST DID NOTHAVE WRITTEN PROCEDURES WITH REGARD TO DUE DILIGENCE TO BEPERFORMED REGARDING POTENTIAL CORRESPONDENT CLEARINGCLIENTS; RATHER, IT REQUIRED THE POTENTIAL CLIENT TO FILL OUT AQUESTIONNAIRE AND SUPPLY CERTAIN DOCUMENTATION, AND USED ACHECKLIST OF DOCUMENTS AND INFORMATION TO BE OBTAINED FROMTHE POTENTIAL CLIENT. ALTHOUGH THE FIRM'S PERSONNEL HADDISCRETION TO OMIT INFORMATION FROM THE CHECKLIST BECAUSE OFTHE LACK OF PROCEDURES, THERE WAS NO METHOD OF ENSURINGTHAT SUCH OMISSION OR DEVIATIONS WERE REASONABLE ANDAPPROPRIATE. THE DEFICIENCIES WITH RESPECT TO SOUTHWEST'SREVIEW COMMITTEE INCLUDED, AMONG OTHER THINGS, FAILURE TOHAVE WRITTEN POLICIES AND PROCEDURES FOR THE REVIEWCOMMITTEE, AND FAILURE BY THE REVIEW COMMITTEE TO PERFORMADEQUATE DUE DILIGENCE AND/OR RISK ASSESSMENT WITH RESPECT TOPROSPECTIVE CORRESPONDENTS. SOUTHWEST FAILED TO HAVEADEQUATE SYSTEMS AND PROCEDURES TO IDENTIFY AND MANAGECERTAIN RISKS ASSOCIATED WITH ITS CORRESPONDENT RELATIONSHIPSAND THE TRADING OF THOSE CORRESPONDENTS, AND THEREFOREFAILED TO ADEQUATELY ASSESS AND MANAGE THE RISKS ASSOCIATEDWITH ITS CORRESPONDENTS, BOTH AT THE INITIATION OF SUCH ARELATIONSHIP AND ON A CONTINUING BASIS THEREAFTER. AMONGOTHER THINGS, SOUTHWEST FAILED TO BE AWARE OF THE BROKER-DEALERS WITH WHICH IT HAD A CORRESPONDENT RELATIONSHIP, ANDFAILED TO NOTIFY NATIONAL SECURITIES CLEARING CORPORATION(NSCC) AND THE NASDAQ RISK MANAGEMENT SYSTEM OF THETERMINATION OF CORRESPONDENT RELATIONSHIPS AND THEREFOREEFFECTIVELY TERMINATE ITS CLEARING LIABILITY; PREMATURELYACCEPTED CLEARING LIABILITY FOR A CORRESPONDENT BY NOTIFYINGNSCC IT WAS PREPARED TO CLEAR FOR THE CORRESPONDENT WHEN INFACT IT WAS NOT SO PREPARED; FAILED TO RECOGNIZE ITSCORRESPONDENTS' ABILITY TO TRADE AWAY FROM IT BASED ON THECORRESPONDENTS' EXCHANGE MEMBERSHIP, AGREEMENTS ANDARRANGEMENTS; AND FAILED TO BE AWARE OF EXTERNAL PROCEDURESAND ESTABLISH INTERNAL PROCEDURES TO TERMINATE ON AN INTRA-DAY BASIS A CORRESPONDENT RELATIONSHIP AND THEREFORE THECORRESPONDENT'S ABILITY TO TRADE. SUCH NOTICE WOULD PREVENTTHE CORRESPONDENT FROM ENTERING ANY FURTHER TRADES,PREVENTS TRADES TO WHICH THE CORRESPONDENT WAS A COUNTER-PARTY FROM BEING REPORTED TO THE TRADE REPORTING FACILITY(TRF), AND WOULD ALLOW SOUTHWEST TO TERMINATE ITS FINANCIALRESPONSIBILITY FOR THE CORRESPONDENT'S TRADING ONCE THETERMINATION WAS GIVEN EFFECT AT NSCC. SOUTHWEST FAILED TO HAVEPROCEDURES TO ESTABLISH AND FAILED TO ESTABLISH REASONABLENASDAQ AUTOMATED CONFIRMATION OF TRANSACTIONS (ACT) RISKMANAGEMENT LIMITS, AND FAILED TO HAVE PROCEDURES FORMONITORING AND RESPONDING TO NASDAQ ACT RISK MANAGEMENTALERTS. [CONTINUED IN ITEM 13]








Other





Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, SOUTHWESTCONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OFFINDINGS; THEREFORE IT IS CENSURED, FINED $650,000 ANDUNDERTAKES TO (1) DESIGNATE A RISK MANAGEMENT OFFICER WITHINTHE FIRM WHOSE PRIMARY RESPONSIBILITY SHALL BE IDENTIFICATIONAND MANAGEMENT OF THE RISK ASSOCIATED WITH THE FIRM'SCORRESPONDENT CLEARING SERVICES BUSINESS; AND (2) WITHIN 30BUSINESS DAYS OF NOTIFICATION OF ACCEPTANCE OF THIS AWC, AREGISTERED PRINCIPAL OF THE FIRM SHALL SUBMIT TO FINRA A SIGNED,DATED LETTER, GIVING THE FOLLOWING INFORMATION: (A) A REFERENCETO THIS MATTER; (B) A REPRESENTATION THAT THE FIRM HASDESIGNATED THE ABOVE-REFERENCED RISK MANAGEMENT OFFICER; (C)THE NAME OF THAT PERSON, AND THE DATE THE PERSON BEGAN THEROLE; (D) A REPRESENTATION THAT THE FIRM HAD REVISED ITS WRITTENSUPERVISORY AND OPERATIONAL PROCEDURES TO ADDRESS THEDEFICIENCIES DESCRIBED HEREIN; AND (E) THE DATE(S) THE REVISEDPROCEDURES WERE IMPLEMENTED.

Firm Statement [CONTINUED FROM ALLEGATIONS]: IN PART, AS A RESULT OF THE ABOVEMENTIONED PROCEDURAL, DUE DILIGENCE, AND OTHER DEFICIENCIESAND VIOLATIVE BEHAVIOR, IN OR ABOUT JUNE 2009, SOUTHWESTENTERED INTO A CORRESPONDENT RELATIONSHIP WITH A FIRM WITHOUTHAVING PERFORMED ADEQUATE DUE DILIGENCE REGARDING THEOWNER OF THE FIRM AND/OR THE FIRM. DESPITE HAVING INFORMATIONIN ITS POSSESSION AND BEING ALERTED TO THE SHARE VOLUME ANDDOLLAR LEVELS OF THE FIRM'S RECENT TRADING, THE CLEARINGSERVICES DEPARTMENT DID NOT INQUIRE FURTHER REGARDING THEFIRM'S TRADING HISTORY; IT SHOULD HAVE CONSIDERED THE RISKMANAGEMENT IMPLICATIONS OF THE TRADING PRACTICES. SOUTHWESTPREMATURELY NOTIFIED NSCC THAT IS WAS PREPARED TO STARTCLEARING FOR THE FIRM WHICH ENABLED THE FIRM TO START TRADING.WITHOUT EVEN A TRADING ACCOUNT OR TRADING DEPOSIT HAVING BEENESTABLISHED AT SOUTHWEST, THE FIRM PURCHASED AND SOLD SHARESOF A NYSE LISTED STOCK. NASDAQ RISK MANAGEMENT ALERTS NOTIFIEDSOUTHWEST OF THE FIRM'S TRADING IN EXCESS OF THE $100,000THRESHOLD SET BY SOUTHWEST, BUT SOUTHWEST FAILED TO TIMELYRESPOND TO SUCH ALERTS OR TERMINATE ITS CLEARING RELATIONSHIPWITH THE FIRM ON THAT TRADING DAY. AFTER THE FIRM ESTABLISHED ATRADING ACCOUNT AT SOUTHWEST AND MADE A TRADING DEPOSIT, THEFIRM ENGAGED IN FURTHER TRADING EVEN THOUGH SOUTHWEST HADSTILL NOT ESTABLISHED A METHOD TO RECEIVE THE INFORMATIONNECESSARY FOR SOUTHWEST TO CLEAR ITS TRADES. THE FIRM'SSECOND DAY OF TRADING RESULTED IN AN UNSECURED LOSS IN ITSACCOUNT AT THE FIRM IN EXCESS OF $6.3 MILLION.








[CONTINUED FROM ALLEGATIONS]: IN PART, AS A RESULT OF THE ABOVEMENTIONED PROCEDURAL, DUE DILIGENCE, AND OTHER DEFICIENCIESAND VIOLATIVE BEHAVIOR, IN OR ABOUT JUNE 2009, SOUTHWESTENTERED INTO A CORRESPONDENT RELATIONSHIP WITH A FIRM WITHOUTHAVING PERFORMED ADEQUATE DUE DILIGENCE REGARDING THEOWNER OF THE FIRM AND/OR THE FIRM. DESPITE HAVING INFORMATIONIN ITS POSSESSION AND BEING ALERTED TO THE SHARE VOLUME ANDDOLLAR LEVELS OF THE FIRM'S RECENT TRADING, THE CLEARINGSERVICES DEPARTMENT DID NOT INQUIRE FURTHER REGARDING THEFIRM'S TRADING HISTORY; IT SHOULD HAVE CONSIDERED THE RISKMANAGEMENT IMPLICATIONS OF THE TRADING PRACTICES. SOUTHWESTPREMATURELY NOTIFIED NSCC THAT IS WAS PREPARED TO STARTCLEARING FOR THE FIRM WHICH ENABLED THE FIRM TO START TRADING.WITHOUT EVEN A TRADING ACCOUNT OR TRADING DEPOSIT HAVING BEENESTABLISHED AT SOUTHWEST, THE FIRM PURCHASED AND SOLD SHARESOF A NYSE LISTED STOCK. NASDAQ RISK MANAGEMENT ALERTS NOTIFIEDSOUTHWEST OF THE FIRM'S TRADING IN EXCESS OF THE $100,000THRESHOLD SET BY SOUTHWEST, BUT SOUTHWEST FAILED TO TIMELYRESPOND TO SUCH ALERTS OR TERMINATE ITS CLEARING RELATIONSHIPWITH THE FIRM ON THAT TRADING DAY. AFTER THE FIRM ESTABLISHED ATRADING ACCOUNT AT SOUTHWEST AND MADE A TRADING DEPOSIT, THEFIRM ENGAGED IN FURTHER TRADING EVEN THOUGH SOUTHWEST HADSTILL NOT ESTABLISHED A METHOD TO RECEIVE THE INFORMATIONNECESSARY FOR SOUTHWEST TO CLEAR ITS TRADES. THE FIRM'SSECOND DAY OF TRADING RESULTED IN AN UNSECURED LOSS IN ITSACCOUNT AT THE FIRM IN EXCESS OF $6.3 MILLION.

Disclosure 19 of 53

i


Allegations: MSRB RULES G-14, G-27, G-36 AND G-38: THE FIRM PAID, OR AGREED TOPAY, FIVE UNAFFILIATED INDIVIDUALS, INCLUDING TWO FORMEROFFICIALS OF STATE ISSUERS OF MUNICIPAL SECURITIES AND TWOINDIVIDUALS WHO WERE FORMERLY AFFILIATED WITH THE FIRM, TOSOLICIT MUNICIPAL SECURITIES BUSINESS ON ITS BEHALF. IN TOTAL, THEFIRM PAID OVER $200,000 TO THE CONSULTANTS FOR THEIR SERVICESAND THE FIRM RECEIVED OVER $1.9 MILLION IN GROSS REVENUES FROMTHE MUNICIPAL SECURITIES BUSINESS OBTAINED BY THE CONSULTANTS;WHEN MSRB RULE G-38 HAS PROHIBITED PAYMENTS TO UNAFFILIATEDINDIVIDUALS FOR THE SOLICITATION OF MUNICIPAL SECURITIESBUSINESS. AS A RESULT OF FINRA'S INVESTIGATION, THE FIRM EMPLOYEDTHE FORMER OFFICIALS OF STATE ISSUERS OF MUNICIPAL SECURITIESAS A NON-REGISTERED FINGERPRINT PERSON, BUT PRIOR TO THIS,THESE INDIVIDUALS HAD NOT BEEN EMPLOYED, ASSOCIATED, ORREGISTERED WITH THE FIRM. THE FIRM FAILED TO COMPLY WITH MSRBRULE G-36, IN THAT IT FAILED TO TIMELY FILE MSRB FORMS G-36(OS) ANDG-36(ARD). THE FILINGS RANGED FROM ONE TO FIFTY-NINE DAYS LATE.THE FIRM FAILED TO COMPLY WITH MSRB RULE G-14, IN THAT ITINACCURATELY REPORTED CERTAIN MUNICIPAL SECURITIESTRANSACTIONS TO THE MSRB. SPECIFICALLY, THE FIRM INACCURATELYREPORTED TRANSACTIONS BY NOT IDENTIFYING THE TRADES AS INTER-DEALER REGULATORY-ONLY (IDRO) TRANSACTIONS. THE FIRM ALSOINACCURATELY REPORTED TRANSACTIONS BY REPORTING THAT THEFIRM WAS BOTH THE BUYER AND THE SELLER. THE FIRM FAILED TOADOPT, MAINTAIN AND ENFORCE PROCEDURES REASONABLY DESIGNEDTO ENSURE COMPLIANCE WITH MSRB RULES G-14, G-37 AND G-38.SPECIFICALLY, THE FIRM HAD INADEQUATE PROCEDURES TO ENSURECOMPLIANCE WITH MSRB RULE G-38, IN THAT THE FIRM'S PROCEDURESHAD NOT BEEN AMENDED TO REFLECT THE CHANGES TO THE RULE TOPROHIBIT PAYMENTS TO NON-AFFILIATED INDIVIDUALS FOR THESOLICITATION OF MUNICIPAL SECURITIES BUSINESS. THE FIRM ALSOFAILED TO ENFORCE THESE OUTDATED PROCEDURES. THE FIRM'SPROCEDURES STATED THAT THE FIRM COULD UTILIZE PAIDCONSULTANTS IN CONNECTION WITH ITS MUNICIPAL BUSINESS, WHICHWAS CONTRARY TO THE REQUIREMENTS OF RULE G-38. THE FIRM'SPROCEDURES FURTHER STATED THAT A CONSULTING RELATIONSHIPWOULD OBLIGATE THE FIRM TO REPORT THE CONSULTANT'S POLITICALCONTRIBUTIONS TO THE MSRB. PURSUANT TO THE PROCEDURES, ANYCONSULTANT ENGAGED BY THE FIRM TO OBTAIN MUNICIPAL BUSINESSWAS REQUIRED TO PROVIDE A REPORT OF POLITICAL CONTRIBUTIONSAND PAYMENTS OR A STATEMENT THAT NO SUCH CONTRIBUTION ORPAYMENT HAD BEEN MADE FOR THE QUARTER BEING REPORTED. THEFIRM FAILED TO ENFORCE ITS PROCEDURES AND DID NOT OBTAIN ANYRECORDS REGARDING ITS CONSULTANTS' POLITICAL CONTRIBUTIONS.THE FIRM ALSO FAILED TO ENFORCE ITS PROCEDURES REGARDINGCOMPLIANCE WITH MSRB RULE G-37, WHICH REGULATES POLITICALCONTRIBUTIONS. SPECIFICALLY, THE FIRM'S PROCEDURES REQUIREDTHAT ALL MUNICIPAL FINANCE PROFESSIONAL (MFPS) HAVE THEIRPOLITICAL CONTRIBUTIONS CLEARED THROUGH THE COMPLIANCEDEPARTMENT PRIOR TO MAKING THE CONTRIBUTIONS. NO SUCH PRE-APPROVAL PROCESS WAS UTILIZED. INSTEAD, THE FIRM SENT AQUARTERLY EMAIL TO EACH MFP ASKING HIM OR HER TO DISCLOSE ANYPOLITICAL CONTRIBUTIONS THAT HAD MADE DURING THE QUARTER. NORESPONSE WAS REQUIRED IF THE MFP HAD NOT MADE ANY POLITICALCONTRIBUTIONS. IN ADDITION TO THE QUARTERLY EMAILS, THE FIRMALSO INQUIRED ABOUT POLITICAL CONTRIBUTIONS ON ITS ANNUALCOMPLIANCE QUESTIONNAIRE ('ACQ"). AT LEAST ONE MFP DISCLOSEDON SEPARATE ACQS THAT HE HAD IN FACT MADE POLITICALCONTRIBUTIONS. NEVERTHELESS, THE FIRM FAILED TO DETECT THATTHE MFP HAD NOT DISCLOSED THE CONTRIBUTIONS VIA THE QUARTERLYEMAILS. THE FIRM HAD NO PROCESS IN PLACE TO RECONCILE ACQDISCLOSURES WITH THE QUARTERLY EMAILS. THE FIRM'S FAILURE TODETECT THE MFP'S POLITICAL CONTRIBUTIONS LED TO THE FIRMENGAGING IN PROHIBITED MUNICIPAL SECURITIES BUSINESS. (CONT. INTHE COMMENT SECTION)







Initiated By: FINRA




MSRB RULES G-14, G-27, G-36 AND G-38: THE FIRM PAID, OR AGREED TOPAY, FIVE UNAFFILIATED INDIVIDUALS, INCLUDING TWO FORMEROFFICIALS OF STATE ISSUERS OF MUNICIPAL SECURITIES AND TWOINDIVIDUALS WHO WERE FORMERLY AFFILIATED WITH THE FIRM, TOSOLICIT MUNICIPAL SECURITIES BUSINESS ON ITS BEHALF. IN TOTAL, THEFIRM PAID OVER $200,000 TO THE CONSULTANTS FOR THEIR SERVICESAND THE FIRM RECEIVED OVER $1.9 MILLION IN GROSS REVENUES FROMTHE MUNICIPAL SECURITIES BUSINESS OBTAINED BY THE CONSULTANTS;WHEN MSRB RULE G-38 HAS PROHIBITED PAYMENTS TO UNAFFILIATEDINDIVIDUALS FOR THE SOLICITATION OF MUNICIPAL SECURITIESBUSINESS. AS A RESULT OF FINRA'S INVESTIGATION, THE FIRM EMPLOYEDTHE FORMER OFFICIALS OF STATE ISSUERS OF MUNICIPAL SECURITIESAS A NON-REGISTERED FINGERPRINT PERSON, BUT PRIOR TO THIS,THESE INDIVIDUALS HAD NOT BEEN EMPLOYED, ASSOCIATED, ORREGISTERED WITH THE FIRM. THE FIRM FAILED TO COMPLY WITH MSRBRULE G-36, IN THAT IT FAILED TO TIMELY FILE MSRB FORMS G-36(OS) ANDG-36(ARD). THE FILINGS RANGED FROM ONE TO FIFTY-NINE DAYS LATE.THE FIRM FAILED TO COMPLY WITH MSRB RULE G-14, IN THAT ITINACCURATELY REPORTED CERTAIN MUNICIPAL SECURITIESTRANSACTIONS TO THE MSRB. SPECIFICALLY, THE FIRM INACCURATELYREPORTED TRANSACTIONS BY NOT IDENTIFYING THE TRADES AS INTER-DEALER REGULATORY-ONLY (IDRO) TRANSACTIONS. THE FIRM ALSOINACCURATELY REPORTED TRANSACTIONS BY REPORTING THAT THEFIRM WAS BOTH THE BUYER AND THE SELLER. THE FIRM FAILED TOADOPT, MAINTAIN AND ENFORCE PROCEDURES REASONABLY DESIGNEDTO ENSURE COMPLIANCE WITH MSRB RULES G-14, G-37 AND G-38.SPECIFICALLY, THE FIRM HAD INADEQUATE PROCEDURES TO ENSURECOMPLIANCE WITH MSRB RULE G-38, IN THAT THE FIRM'S PROCEDURESHAD NOT BEEN AMENDED TO REFLECT THE CHANGES TO THE RULE TOPROHIBIT PAYMENTS TO NON-AFFILIATED INDIVIDUALS FOR THESOLICITATION OF MUNICIPAL SECURITIES BUSINESS. THE FIRM ALSOFAILED TO ENFORCE THESE OUTDATED PROCEDURES. THE FIRM'SPROCEDURES STATED THAT THE FIRM COULD UTILIZE PAIDCONSULTANTS IN CONNECTION WITH ITS MUNICIPAL BUSINESS, WHICHWAS CONTRARY TO THE REQUIREMENTS OF RULE G-38. THE FIRM'SPROCEDURES FURTHER STATED THAT A CONSULTING RELATIONSHIPWOULD OBLIGATE THE FIRM TO REPORT THE CONSULTANT'S POLITICALCONTRIBUTIONS TO THE MSRB. PURSUANT TO THE PROCEDURES, ANYCONSULTANT ENGAGED BY THE FIRM TO OBTAIN MUNICIPAL BUSINESSWAS REQUIRED TO PROVIDE A REPORT OF POLITICAL CONTRIBUTIONSAND PAYMENTS OR A STATEMENT THAT NO SUCH CONTRIBUTION ORPAYMENT HAD BEEN MADE FOR THE QUARTER BEING REPORTED. THEFIRM FAILED TO ENFORCE ITS PROCEDURES AND DID NOT OBTAIN ANYRECORDS REGARDING ITS CONSULTANTS' POLITICAL CONTRIBUTIONS.THE FIRM ALSO FAILED TO ENFORCE ITS PROCEDURES REGARDINGCOMPLIANCE WITH MSRB RULE G-37, WHICH REGULATES POLITICALCONTRIBUTIONS. SPECIFICALLY, THE FIRM'S PROCEDURES REQUIREDTHAT ALL MUNICIPAL FINANCE PROFESSIONAL (MFPS) HAVE THEIRPOLITICAL CONTRIBUTIONS CLEARED THROUGH THE COMPLIANCEDEPARTMENT PRIOR TO MAKING THE CONTRIBUTIONS. NO SUCH PRE-APPROVAL PROCESS WAS UTILIZED. INSTEAD, THE FIRM SENT AQUARTERLY EMAIL TO EACH MFP ASKING HIM OR HER TO DISCLOSE ANYPOLITICAL CONTRIBUTIONS THAT HAD MADE DURING THE QUARTER. NORESPONSE WAS REQUIRED IF THE MFP HAD NOT MADE ANY POLITICALCONTRIBUTIONS. IN ADDITION TO THE QUARTERLY EMAILS, THE FIRMALSO INQUIRED ABOUT POLITICAL CONTRIBUTIONS ON ITS ANNUALCOMPLIANCE QUESTIONNAIRE ('ACQ"). AT LEAST ONE MFP DISCLOSEDON SEPARATE ACQS THAT HE HAD IN FACT MADE POLITICALCONTRIBUTIONS. NEVERTHELESS, THE FIRM FAILED TO DETECT THATTHE MFP HAD NOT DISCLOSED THE CONTRIBUTIONS VIA THE QUARTERLYEMAILS. THE FIRM HAD NO PROCESS IN PLACE TO RECONCILE ACQDISCLOSURES WITH THE QUARTERLY EMAILS. THE FIRM'S FAILURE TODETECT THE MFP'S POLITICAL CONTRIBUTIONS LED TO THE FIRMENGAGING IN PROHIBITED MUNICIPAL SECURITIES BUSINESS. (CONT. INTHE COMMENT SECTION)








Other


N/A


Other Product Type(s): MUNICIPAL SECURITIES


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS,THEREFORE THE FIRM IS CENSURED AND FINED $500,000.

WITHIN 60 DAYS OF THE ISSUANCE OF THE AWC, AN OFFICER OF THEFIRM SHALL CERTIFY TO FINRA IN WRITING THAT THE FIRM HASREVIEWED ITS PROCEDURES REGARDING COMPLIANCE WITH ALLAPPLICABLE MSRB RULES, AND THAT THE FIRM HAS ESTABLISHEDSYSTEMS AND PROCEDURES REASONABLY DESIGNED TO ACHIEVECOMPLIANCE WITH THE RULES. THE FIRM SHALL PROVIDE FINRA WITH AWRITTEN DETAILED DESCRIPTION OF THE REVIEW CONDUCTED, ITSSYSTEMS AND PROCEDURES, AND ANY CHANGES TO ITS SYSTEMS ANDPROCEDURES, INCLUDING A COPY OF ANY CHANGES TO APPLICABLEWRITTEN PROCEDURES.

Regulator Statement THE FIRM'S PROCEDURES REGARDING COMPLIANCE WITH MSRB RULE G-14 WERE INADEQUATE, IN THAT THEY FAILED TO OUTLINE A PROCESS FORFOLLOW-UP ON INFORMATION LEARNED FROM REVIEWS OF MSRB REAL-TIME TRANSACTION REPORTING SYSTEM ("RTRS") REPORT DATA.


No




Allegations: DURING THE PERIOD FROM OCTOBER 2006 THROUGH APRIL 2009, THEFIRM PAID FIVE INDIVIDUALS, INCLUDING THREE FORMER TEXASMUNICIPAL ISSUER OFFICIALS, TO SOLICIT MUNICIPAL SECURITIESBUSINESS ON ITS BEHALF. ALSO THE FIRM WAS FOUND TO HAVEVIOLATED MSRB RULES BY FAILING TO FILE 10 MSRB FORMS G-36(OS)AND G-36(ARD) IN A TIMELY MANNER AND FOR INACCURATELY REPORTINGMORE THAN 300 MUNICIPAL SECURITIES TRANSACTIONS TO THE MSRB.







Initiated By: FINRA


Censure


ADMINISTRATIVE FINE AND CERTIFICATION IN WRITING WITHIN 60 DAYSTHAT THE FIRM HAS REVIEWED ITS PROCEDURES REGARDINGCOMPLIANCE WITH ALL APPLICABLE MSRB RULES, AND THE FIRM HASESTABLISHED SYSTEMS AND PROCEDURES REASONABLY DESIGNED TOACHIEVE COMPLIANCE WITH THE RULES.





Allegations: DURING THE PERIOD FROM OCTOBER 2006 THROUGH APRIL 2009, THEFIRM PAID FIVE INDIVIDUALS, INCLUDING THREE FORMER TEXASMUNICIPAL ISSUER OFFICIALS, TO SOLICIT MUNICIPAL SECURITIESBUSINESS ON ITS BEHALF. ALSO THE FIRM WAS FOUND TO HAVEVIOLATED MSRB RULES BY FAILING TO FILE 10 MSRB FORMS G-36(OS)AND G-36(ARD) IN A TIMELY MANNER AND FOR INACCURATELY REPORTINGMORE THAN 300 MUNICIPAL SECURITIES TRANSACTIONS TO THE MSRB.


Resolution:

Other Sanctions Ordered: CERTIFICATION IN WRITING WITHIN 60 DAYS THAT THE FIRM HASREVIEWED ITS PROCEDURES REGARDING COMPLIANCE WITH ALLAPPLICABLE MSRB RULES, AND THE FIRM HAS ESTABLISHED SYSTEMSAND PROCEDURES REASONABLY DESIGNED TO ACHIEVE COMPLIANCEWITH THE RULES.

Sanction Details: FIRM WAS CENSURED AND THEN ASSESSED AN ADMINISTRATIVE FINE INTHE AMOUNT OF $500,000.00, AND REQUIRED TO REVIEW ITSPROCEDURES REGARDING COMPLIANCE WITH ALL APPLICABLE MSRBRULES, AND CERTIFY IN WRITING WITHIN 60 DAYS THAT SYSTEMS ANDPROCEDURES HAVE BEEN ESTABLISHED THAT ARE REASONABLYDESIGNED TO ACHIEVE COMPLIANCE WITH THE RULES.



Disclosure 20 of 53

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Initiated By: FINRA


Censure


ADMINISTRATIVE FINE AND RESTITUTION.





Allegations: PRIOR TO ACQUISITION BY SOUTHWEST SECURITIES, INC., ML STERN ANDCO. SOLD (BOUGHT) CORPORATE BONDS TO (FROM) CUSTOMERS ANDFAILED TO SELL (BUY) SUCH BONDS AT A PRICE THAT WAS FAIR, TAKINGINTO CONSIDERATION ALL RELEVANT CIRCUMSTANCES, INCLUDINGMARKET CONDITIONS WITH RESPECT TO EACH BOND AT THE TIME OF THETRANSACTION, THE EXPENSE INVOLVED AND THAT THE FIRM WASENTITLED TO A PROFIT.



Resolution:

Other Sanctions Ordered: FIRM WAS ORDERED TO PAY RESTITUTION IN THE AMOUNT OF $1846.50,PLUS INTEREST TO THE INVESTORS.

Sanction Details: ADMINITRATIVE FINE $12,500.00, RESTITUTION OF $1,846.50 PLUSINTEREST.

Firm Statement PRIOR TO ACQUISITION BY SOUTHWEST SECURITIES, INC., ML STERNSOLD (BOUGHT) CORPORATE BONDS TO (FROM) CUSTOMERS AND FAILEDTO SELL (BUY) SUCH BONDS AT A PRICE THAT WAS FAIR, TAKING INTOCONSIDERATION ALL RELEVANT CIRCUMSTANCES, INCLUDING MARKETCONDITIONS WITH RESPECT TO EACH BOND AT THE TIME OF THETRANSACTION, THE EXPENSE INVOLVED AND THAT THE FIRM WASENTITLED TO A PROFIT.



Disclosure 21 of 53

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Initiated By: FINRA





Principal Product Type: Equity - OTC


Allegations: FINRA RULES 2010, 6622(G), NASD RULES 2110, 3010, 6620(G) -SOUTHWEST SECURITIES, INC. REPORTED TO THE OTC REPORTINGFACILITY LAST SALE REPORTS OF TRANSACTIONS IN OTC EQUITYSECURITIES IT WAS NOT REQUIRED TO REPORT. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND FINRA RULES CONCERNING TRADEREPORTING FOR TRANSACTIONS EXECUTED AND REPORTED BY WAY OFA GIVE-UP AGREEMENT.



Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM WAS CENSURED AND FINED $12,500.


No










Initiated By: FINRA







Allegations: FINRA RULES 2010, 6622(G), NASD RULES 2110, 3010, 6620(G) -SOUTHWEST SECURITIES, INC. REPORTED TO THE OTC REPORTINGFACILITY LAST SALE REPORTS OF TRANSACTIONS IN OTC EQUITYSECURITIES IT WAS NOT REQUIRED TO REPORT. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND FINRA RULES CONCERNING TRADEREPORTING FOR TRANSACTIONS EXECUTED AND REPORTED BY WAY OFA GIVE-UP AGREEMENT.



Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM WAS CENSURED AND FINED $12,500.



Disclosure 22 of 53

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Allegations: SEC ADMINISTRATIVE RELEASE 34-61768, MARCH 24, 2010: THESECURITIES AND EXCHANGE COMMISSION ("COMMISSION") DEEMS ITAPPROPRIATE AND IN THE PUBLIC INTEREST THAT PUBLICADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, ANDHEREBY ARE, INSTITUTED PURSUANT TO SECTIONS 15(B), 15B(C)(2) AND21C OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT")AGAINST SOUTHWEST SECURITIES, INC. ("SOUTHWEST" OR "RESPONDENT"). THESE PROCEEDINGS INVOLVE VIOLATIONS OF THELAW CONCERNING POLITICAL CONTRIBUTIONS AND MUNICIPALSECURITIES BUSINESS BY SOUTHWEST, A BROKER-DEALER ANDMUNICIPAL SECURITIES DEALER. FROM DECEMBER 2000 TO JULY 2009, ASALES PERSON WITH THE TITLE OF SENIOR VICE PRESIDENT INSOUTHWEST'S PUBLIC FINANCE OFFICE ("SENIOR VICE PRESIDENT"),ENGAGED IN SOLICITATION ACTIVITIES THAT MADE HIM A "MUNICIPALFINANCE PROFESSIONAL" UNDER MUNICIPAL SECURITIES RULEMAKINGBOARD ("MSRB") RULE G-37. THE SENIOR VICE PRESIDENT MADEPOLITICAL CONTRIBUTIONS TO AN INCUMBENT FOR OFFICE WITHINFLUENCE OVER THE AWARDING OF MUNICIPAL SECURITIES BUSINESSBY CERTAIN STATE ISSUERS IN MASSACHUSETTS. WITHIN TWO YEARS OFTHESE POLITICAL CONTRIBUTIONS, SOUTHWEST ENGAGED IN MUNICIPALSECURITIES BUSINESS WITH THE ISSUERS ASSOCIATED WITH THEINCUMBENT WHO RECEIVED THE POLITICAL CONTRIBUTIONS.SOUTHWEST'S ENGAGEMENT IN MUNICIPAL SECURITIES BUSINESS WITHTHESE ISSUERS VIOLATED SECTION 15B(C)(1) OF THE EXCHANGE ACTAND MSRB RULE G-37(B). THE CONTRIBUTIONS WERE NOT DISCLOSED ONMSRB FORMS G-37 IN VIOLATION OF MSRB RULE G-37(E).















SEC ADMINISTRATIVE RELEASE 34-61768, MARCH 24, 2010: THESECURITIES AND EXCHANGE COMMISSION ("COMMISSION") DEEMS ITAPPROPRIATE AND IN THE PUBLIC INTEREST THAT PUBLICADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, ANDHEREBY ARE, INSTITUTED PURSUANT TO SECTIONS 15(B), 15B(C)(2) AND21C OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT")AGAINST SOUTHWEST SECURITIES, INC. ("SOUTHWEST" OR "RESPONDENT"). THESE PROCEEDINGS INVOLVE VIOLATIONS OF THELAW CONCERNING POLITICAL CONTRIBUTIONS AND MUNICIPALSECURITIES BUSINESS BY SOUTHWEST, A BROKER-DEALER ANDMUNICIPAL SECURITIES DEALER. FROM DECEMBER 2000 TO JULY 2009, ASALES PERSON WITH THE TITLE OF SENIOR VICE PRESIDENT INSOUTHWEST'S PUBLIC FINANCE OFFICE ("SENIOR VICE PRESIDENT"),ENGAGED IN SOLICITATION ACTIVITIES THAT MADE HIM A "MUNICIPALFINANCE PROFESSIONAL" UNDER MUNICIPAL SECURITIES RULEMAKINGBOARD ("MSRB") RULE G-37. THE SENIOR VICE PRESIDENT MADEPOLITICAL CONTRIBUTIONS TO AN INCUMBENT FOR OFFICE WITHINFLUENCE OVER THE AWARDING OF MUNICIPAL SECURITIES BUSINESSBY CERTAIN STATE ISSUERS IN MASSACHUSETTS. WITHIN TWO YEARS OFTHESE POLITICAL CONTRIBUTIONS, SOUTHWEST ENGAGED IN MUNICIPALSECURITIES BUSINESS WITH THE ISSUERS ASSOCIATED WITH THEINCUMBENT WHO RECEIVED THE POLITICAL CONTRIBUTIONS.SOUTHWEST'S ENGAGEMENT IN MUNICIPAL SECURITIES BUSINESS WITHTHESE ISSUERS VIOLATED SECTION 15B(C)(1) OF THE EXCHANGE ACTAND MSRB RULE G-37(B). THE CONTRIBUTIONS WERE NOT DISCLOSED ONMSRB FORMS G-37 IN VIOLATION OF MSRB RULE G-37(E).


Resolution:


No

Sanctions Ordered: Monetary/Fine $50,000.00Disgorgement/RestitutionCease and Desist/Injunction

Order







Sanction Details: RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT (THE "OFFER")WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. SOLELY FOR THEPURPOSE OF THESE PROCEEDINGS AND ANY OTHER PROCEEDINGSBROUGHT BY OR ON BEHALF OF THE COMMISSION, OR TO WHICH THECOMMISSION IS A PARTY, AND WITHOUT ADMITTING OR DENYING THEFINDINGS HEREIN, EXCEPT AS TO THE COMMISSION'S JURISDICTIONOVER IT AND THE SUBJECT MATTER OF THESE PROCEEDINGS, WHICHARE ADMITTED, RESPONDENT CONSENTS TO THE ENTRY OF THIS ORDERINSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGSPURSUANT TO SECTIONS 15(B), 15B(C)(2) AND 21C OF THE SECURITIESEXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIALSANCTIONS AND A CEASE-AND-DESIST ORDER. AS A RESULT OF ITSCONDUCT, SOUTHWEST WILLFULLY VIOLATED MSRB RULES G-37(B) ANDG-37(E). AS A RESULT OF SOUTHWEST'S WILLFUL VIOLATIONS OF MSRBRULES G-37(B) AND G-37(E), SOUTHWEST WILLFULLY VIOLATED SECTION15B(C)(1) OF THE EXCHANGE ACT. ACCORDINGLY, PURSUANT TOSECTIONS 15(B), 15B(C)(2), 21B AND 21C OF THE EXCHANGE ACT, IT ISHEREBY ORDERED THAT RESPONDENT SOUTHWEST CEASE AND DESISTFROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTUREVIOLATIONS OF SECTION 15B(C)(1) OF THE EXCHANGE ACT, MSRB RULE G-37(B) AND MSRB RULE G-37(E). RESPONDENT SOUTHWEST SHALL, WITHIN10 DAYS OF THE ENTRY OF THIS ORDER, PAY DISGORGEMENT OF $348,154AND PREJUDGMENT INTEREST OF $71,993 TO THE UNITED STATESTREASURY. RESPONDENT SOUTHWEST SHALL, WITHIN 10 DAYS OF THEENTRY OF THIS ORDER, PAY A CIVIL MONEY PENALTY IN THE AMOUNT OF$50,000 TO THE UNITED STATES TREASURY. IF TIMELY PAYMENT IS NOTMADE, ADDITIONAL INTEREST SHALL ACCRUE PURSUANT TO 31 U.S.C.3717.



Allegations: SEC ADMINISTRATIVE RELEASE 34-61768, MARCH 24, 2010: THESECURITIES AND EXCHANGE COMMISSION ("COMMISSION") DEEMS ITAPPROPRIATE AND IN THE PUBLIC INTEREST THAT PUBLICADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, ANDHEREBY ARE, INSTITUTED PURSUANT TO SECTIONS 15(B), 15B(C)(2) AND21C OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT")AGAINST SOUTHWEST SECURITIES, INC. ("SOUTHWEST" OR "RESPONDENT"). THESE PROCEEDINGS INVOLVE VIOLATIONS OF THELAW CONCERNING POLITICAL CONTRIBUTIONS AND MUNICIPALSECURITIES BUSINESS BY SOUTHWEST, A BROKER-DEALER ANDMUNICIPAL SECURITIES DEALER. FROM DECEMBER 2000 TO JULY 2009, ASALES PERSON WITH THE TITLE OF SENIOR VICE PRESIDENT INSOUTHWEST'S PUBLIC FINANCE OFFICE ("SENIOR VICE PRESIDENT"),ENGAGED IN SOLICITATION ACTIVITIES THAT MADE HIM A "MUNICIPALFINANCE PROFESSIONAL" UNDER MUNICIPAL SECURITIES RULEMAKINGBOARD ("MSRB") RULE G-37. THE SENIOR VICE PRESIDENT MADEPOLITICAL CONTRIBUTIONS TO AN INCUMBENT FOR OFFICE WITHINFLUENCE OVER THE AWARDING OF MUNICIPAL SECURITIES BUSINESSBY CERTAIN STATE ISSUERS IN MASSACHUSETTS. WITHIN TWO YEARS OFTHESE POLITICAL CONTRIBUTIONS, SOUTHWEST ENGAGED IN MUNICIPALSECURITIES BUSINESS WITH THE ISSUERS ASSOCIATED WITH THEINCUMBENT WHO RECEIVED THE POLITICAL CONTRIBUTIONS.SOUTHWEST'S ENGAGEMENT IN MUNICIPAL SECURITIES BUSINESS WITHTHESE ISSUERS VIOLATED SECTION 15B(C)(1) OF THE EXCHANGE ACTAND MSRB RULE G-37(B). THE CONTRIBUTIONS WERE NOT DISCLOSED ONMSRB FORMS G-37 IN VIOLATION OF MSRB RULE G-37(E).














SEC ADMINISTRATIVE RELEASE 34-61768, MARCH 24, 2010: THESECURITIES AND EXCHANGE COMMISSION ("COMMISSION") DEEMS ITAPPROPRIATE AND IN THE PUBLIC INTEREST THAT PUBLICADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, ANDHEREBY ARE, INSTITUTED PURSUANT TO SECTIONS 15(B), 15B(C)(2) AND21C OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT")AGAINST SOUTHWEST SECURITIES, INC. ("SOUTHWEST" OR "RESPONDENT"). THESE PROCEEDINGS INVOLVE VIOLATIONS OF THELAW CONCERNING POLITICAL CONTRIBUTIONS AND MUNICIPALSECURITIES BUSINESS BY SOUTHWEST, A BROKER-DEALER ANDMUNICIPAL SECURITIES DEALER. FROM DECEMBER 2000 TO JULY 2009, ASALES PERSON WITH THE TITLE OF SENIOR VICE PRESIDENT INSOUTHWEST'S PUBLIC FINANCE OFFICE ("SENIOR VICE PRESIDENT"),ENGAGED IN SOLICITATION ACTIVITIES THAT MADE HIM A "MUNICIPALFINANCE PROFESSIONAL" UNDER MUNICIPAL SECURITIES RULEMAKINGBOARD ("MSRB") RULE G-37. THE SENIOR VICE PRESIDENT MADEPOLITICAL CONTRIBUTIONS TO AN INCUMBENT FOR OFFICE WITHINFLUENCE OVER THE AWARDING OF MUNICIPAL SECURITIES BUSINESSBY CERTAIN STATE ISSUERS IN MASSACHUSETTS. WITHIN TWO YEARS OFTHESE POLITICAL CONTRIBUTIONS, SOUTHWEST ENGAGED IN MUNICIPALSECURITIES BUSINESS WITH THE ISSUERS ASSOCIATED WITH THEINCUMBENT WHO RECEIVED THE POLITICAL CONTRIBUTIONS.SOUTHWEST'S ENGAGEMENT IN MUNICIPAL SECURITIES BUSINESS WITHTHESE ISSUERS VIOLATED SECTION 15B(C)(1) OF THE EXCHANGE ACTAND MSRB RULE G-37(B). THE CONTRIBUTIONS WERE NOT DISCLOSED ONMSRB FORMS G-37 IN VIOLATION OF MSRB RULE G-37(E).


Resolution:


Sanction Details: RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT (THE "OFFER")WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. SOLELY FOR THEPURPOSE OF THESE PROCEEDINGS AND ANY OTHER PROCEEDINGSBROUGHT BY OR ON BEHALF OF THE COMMISSION, OR TO WHICH THECOMMISSION IS A PARTY, AND WITHOUT ADMITTING OR DENYING THEFINDINGS HEREIN, EXCEPT AS TO THE COMMISSION'S JURISDICTIONOVER IT AND THE SUBJECT MATTER OF THESE PROCEEDINGS, WHICHARE ADMITTED, RESPONDENT CONSENTS TO THE ENTRY OF THIS ORDERINSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGSPURSUANT TO SECTIONS 15(B), 15B(C)(2) AND 21C OF THE SECURITIESEXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIALSANCTIONS AND A CEASE-AND-DESIST ORDER. AS A RESULT OF ITSCONDUCT, SOUTHWEST WILLFULLY VIOLATED MSRB RULES G-37(B) ANDG-37(E). AS A RESULT OF SOUTHWEST'S WILLFUL VIOLATIONS OF MSRBRULES G-37(B) AND G-37(E), SOUTHWEST WILLFULLY VIOLATED SECTION15B(C)(1) OF THE EXCHANGE ACT. ACCORDINGLY, PURSUANT TOSECTIONS 15(B), 15B(C)(2), 21B AND 21C OF THE EXCHANGE ACT, IT ISHEREBY ORDERED THAT RESPONDENT SOUTHWEST CEASE AND DESISTFROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTUREVIOLATIONS OF SECTION 15B(C)(1) OF THE EXCHANGE ACT, MSRB RULE G-37(B) AND MSRB RULE G-37(E). RESPONDENT SOUTHWEST SHALL, WITHIN10 DAYS OF THE ENTRY OF THIS ORDER, PAY DISGORGEMENT OF $348,154AND PREJUDGMENT INTEREST OF $71,993 TO THE UNITED STATESTREASURY. RESPONDENT SOUTHWEST SHALL, WITHIN 10 DAYS OF THEENTRY OF THIS ORDER, PAY A CIVIL MONEY PENALTY IN THE AMOUNT OF$50,000 TO THE UNITED STATES TREASURY. IF TIMELY PAYMENT IS NOTMADE, ADDITIONAL INTEREST SHALL ACCRUE PURSUANT TO 31 U.S.C.3717.


Order





www.finra.org/brokercheck User GuidanceRESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT (THE "OFFER")WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. SOLELY FOR THEPURPOSE OF THESE PROCEEDINGS AND ANY OTHER PROCEEDINGSBROUGHT BY OR ON BEHALF OF THE COMMISSION, OR TO WHICH THECOMMISSION IS A PARTY, AND WITHOUT ADMITTING OR DENYING THEFINDINGS HEREIN, EXCEPT AS TO THE COMMISSION'S JURISDICTIONOVER IT AND THE SUBJECT MATTER OF THESE PROCEEDINGS, WHICHARE ADMITTED, RESPONDENT CONSENTS TO THE ENTRY OF THIS ORDERINSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGSPURSUANT TO SECTIONS 15(B), 15B(C)(2) AND 21C OF THE SECURITIESEXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIALSANCTIONS AND A CEASE-AND-DESIST ORDER. AS A RESULT OF ITSCONDUCT, SOUTHWEST WILLFULLY VIOLATED MSRB RULES G-37(B) ANDG-37(E). AS A RESULT OF SOUTHWEST'S WILLFUL VIOLATIONS OF MSRBRULES G-37(B) AND G-37(E), SOUTHWEST WILLFULLY VIOLATED SECTION15B(C)(1) OF THE EXCHANGE ACT. ACCORDINGLY, PURSUANT TOSECTIONS 15(B), 15B(C)(2), 21B AND 21C OF THE EXCHANGE ACT, IT ISHEREBY ORDERED THAT RESPONDENT SOUTHWEST CEASE AND DESISTFROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTUREVIOLATIONS OF SECTION 15B(C)(1) OF THE EXCHANGE ACT, MSRB RULE G-37(B) AND MSRB RULE G-37(E). RESPONDENT SOUTHWEST SHALL, WITHIN10 DAYS OF THE ENTRY OF THIS ORDER, PAY DISGORGEMENT OF $348,154AND PREJUDGMENT INTEREST OF $71,993 TO THE UNITED STATESTREASURY. RESPONDENT SOUTHWEST SHALL, WITHIN 10 DAYS OF THEENTRY OF THIS ORDER, PAY A CIVIL MONEY PENALTY IN THE AMOUNT OF$50,000 TO THE UNITED STATES TREASURY. IF TIMELY PAYMENT IS NOTMADE, ADDITIONAL INTEREST SHALL ACCRUE PURSUANT TO 31 U.S.C.3717.

Disclosure 23 of 53

i


Allegations: SEC RULE 203(B)(3) OF REGULATION SHO, NASD RULES 2110, 2440, 3010,6955(A), INTERPRETATIVE MATERIAL 2440, MSRB RULES G-14, G-17, G-30(A)- SOUTHWEST SECURITIES, INC. HAD A FAIL-TO-DELIVER POSITION AT AREGISTERED CLEARING AGENCY IN A COMMON STOCK, A THRESHOLDSECURITY, FOR 13 CONSECUTIVE SETTLEMENT DAYS AND FAILED TOIMMEDIATELY THEREAFTER CLOSE OUT THE FAIL-TO-DELIVER POSITIONBY PURCHASING SECURITIES OF LIKE KIND AND QUANTITY. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOAPPLICABLE SECURITIES LAWS, REGULATIONS AND NASD RULESCONCERNING SEC RULES 203(A) AND 203(B)(3). THE FIRM FAILED TOPROVIDE DOCUMENTARY EVIDENCE THAT IT PERFORMED THESUPERVISORY REVIEWS SET FORTH IN ITS WRITTEN SUPERVISORYPROCEDURES CONCERNING NASD RULES 3350 AND 6130(D)(6) AND SECRULES 200(G) AND 203(B)(1) OF REGULATION SHO. THE FIRM FAILED TOREPORT TO THE ORDER AUDIT TRAIL SYSTEM (OATS) ROUTE REPORTS.THE FIRM REPORTED ROUTE OR COMBINED ORDER/ROUTE REPORTSWITH AN INACCURATE DESTINATION CODE. THE FIRM FAILED TO REPORTINFORMATION REGARDING PURCHASE AND SALE TRANSACTIONSEFFECTED IN MUNICIPAL SECURITIES TO THE REAL-TIME TRANSACTIONREPORTING SYSTEM (RTRS) IN THE MANNER PRESCRIBED BY RULE G-14,RTRS PROCEDURES AND THE RTRS USERS MANUAL; THE FIRM FAILED TOREPORT INFORMATION ABOUT SUCH TRANSACTIONS WITHIN 15 MINUTESOF TIME OF TRADE TO AN RTRS PORTAL. THE FIRM SOLD (BOUGHT)CORPORATE BONDS TO (FROM) CUSTOMERS AND FAILED TO SELL (BUY)SUCH BONDS AT A PRICE THAT WAS FAIR, TAKING INTO CONSIDERATIONALL RELEVANT CIRCUMSTANCES, INCLUDING MARKET CONDITIONS WITHRESPECT TO EACH BOND AT THE TIME OF THE TRANSACTION, THEEXPENSE INVOLVED AND THAT THE FIRM WAS ENTITLED TO A PROFIT. INPAIRS OF TRANSACTIONS, THE FIRM PURCHASED MUNICIPAL SECURITIESFOR ITS OWN ACCOUNT FROM A CUSTOMER AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO A CUSTOMER AT AN AGGREGATEPRICE (INCLUDING ANY MARKDOWN OR MARKUP)THAT WAS NOT FAIR ANDREASONABLE, TAKING INTO CONSIDERATION ALL RELEVANT FACTORS,INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER ORMUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OF THESECURITIES AT THE TIME OF TRANSACTION AND OF ANY SECURITIESEXCHANGED OR TRADED IN CONNECTION WITH THE TRANSACTION, THEEXPENSE INVOLVED IN EFFECTING THE TRANSACTION, THE FACT THATTHE BROKER, DEALER, OR MUNICIPAL SECURITIES DEALER IS ENTITLEDTO A PROFIT, AND THE TOTAL DOLLAR AMOUNT OF THE TRANSACTION.







Initiated By: FINRA






Other Product Type(s): MUNICIPAL SECURITIES, CORPORATE BONDS

SEC RULE 203(B)(3) OF REGULATION SHO, NASD RULES 2110, 2440, 3010,6955(A), INTERPRETATIVE MATERIAL 2440, MSRB RULES G-14, G-17, G-30(A)- SOUTHWEST SECURITIES, INC. HAD A FAIL-TO-DELIVER POSITION AT AREGISTERED CLEARING AGENCY IN A COMMON STOCK, A THRESHOLDSECURITY, FOR 13 CONSECUTIVE SETTLEMENT DAYS AND FAILED TOIMMEDIATELY THEREAFTER CLOSE OUT THE FAIL-TO-DELIVER POSITIONBY PURCHASING SECURITIES OF LIKE KIND AND QUANTITY. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOAPPLICABLE SECURITIES LAWS, REGULATIONS AND NASD RULESCONCERNING SEC RULES 203(A) AND 203(B)(3). THE FIRM FAILED TOPROVIDE DOCUMENTARY EVIDENCE THAT IT PERFORMED THESUPERVISORY REVIEWS SET FORTH IN ITS WRITTEN SUPERVISORYPROCEDURES CONCERNING NASD RULES 3350 AND 6130(D)(6) AND SECRULES 200(G) AND 203(B)(1) OF REGULATION SHO. THE FIRM FAILED TOREPORT TO THE ORDER AUDIT TRAIL SYSTEM (OATS) ROUTE REPORTS.THE FIRM REPORTED ROUTE OR COMBINED ORDER/ROUTE REPORTSWITH AN INACCURATE DESTINATION CODE. THE FIRM FAILED TO REPORTINFORMATION REGARDING PURCHASE AND SALE TRANSACTIONSEFFECTED IN MUNICIPAL SECURITIES TO THE REAL-TIME TRANSACTIONREPORTING SYSTEM (RTRS) IN THE MANNER PRESCRIBED BY RULE G-14,RTRS PROCEDURES AND THE RTRS USERS MANUAL; THE FIRM FAILED TOREPORT INFORMATION ABOUT SUCH TRANSACTIONS WITHIN 15 MINUTESOF TIME OF TRADE TO AN RTRS PORTAL. THE FIRM SOLD (BOUGHT)CORPORATE BONDS TO (FROM) CUSTOMERS AND FAILED TO SELL (BUY)SUCH BONDS AT A PRICE THAT WAS FAIR, TAKING INTO CONSIDERATIONALL RELEVANT CIRCUMSTANCES, INCLUDING MARKET CONDITIONS WITHRESPECT TO EACH BOND AT THE TIME OF THE TRANSACTION, THEEXPENSE INVOLVED AND THAT THE FIRM WAS ENTITLED TO A PROFIT. INPAIRS OF TRANSACTIONS, THE FIRM PURCHASED MUNICIPAL SECURITIESFOR ITS OWN ACCOUNT FROM A CUSTOMER AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO A CUSTOMER AT AN AGGREGATEPRICE (INCLUDING ANY MARKDOWN OR MARKUP)THAT WAS NOT FAIR ANDREASONABLE, TAKING INTO CONSIDERATION ALL RELEVANT FACTORS,INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER ORMUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OF THESECURITIES AT THE TIME OF TRANSACTION AND OF ANY SECURITIESEXCHANGED OR TRADED IN CONNECTION WITH THE TRANSACTION, THEEXPENSE INVOLVED IN EFFECTING THE TRANSACTION, THE FACT THATTHE BROKER, DEALER, OR MUNICIPAL SECURITIES DEALER IS ENTITLEDTO A PROFIT, AND THE TOTAL DOLLAR AMOUNT OF THE TRANSACTION.


Resolution:


No









Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $54,500, ORDERED TO PAY$23,394.08, PLUS INTEREST, IN RESTITUTION TO CUSTOMERS ANDREQUIRED TO REVISE ITS WRITTEN SUPERVISORY PROCEDURESREGARDING COMPLIANCE WITH SEC RULES 203(A) AND 203(B)(3)WITHIN30 BUSINESS DAYS OF ACCEPTANCE OF THIS AWC BY THE NAC. AREGISTERED PRINCIPAL OF THE FIRM SHALL SUBMIT SATISFACTORYPROOF OF PAYMENT OF THE RESTITUTION, OR OF REASONABLE ANDDOCUMENTED EFFORTS UNDERTAKEN TO EFFECT RESTITUTION TOFINRA NO LATER THAN 120 DAYS AFTER ACCEPTANCE OF THIS AWC. ANYUNDISTRIBUTED RESTITUTION AND INTEREST SHALL BE FORWARDED TOTHE APPROPRIATE ESCHEAT, UNCLAIMED PROPERTY OR ABANDONEDPROPERTY FUND FOR THE STATE IN WHICH THE CUSTOMER LASTRESIDED.


No



Allegations: SEC RULE 203(B)(3) OF REGULATION SHO, NASD RULES 2110, 2440, 3010,6955(A), INTERPRETATIVE MATERIAL 2440, MSRB RULES G-14, G-17, G-30(A)- SOUTHWEST SECURITIES, INC. HAD A FAIL-TO-DELIVER POSITION AT AREGISTERED CLEARING AGENCY IN A COMMON STOCK, A THRESHOLDSECURITY, FOR 13 CONSECUTIVE SETTLEMENT DAYS AND FAILED TOIMMEDIATELY THEREAFTER CLOSE OUT THE FAIL-TO-DELIVER POSITIONBY PURCHASING SECURITIES OF LIKE KIND AND QUANTITY. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOAPPLICABLE SECURITIES LAWS, REGULATIONS AND NASD RULESCONCERNING SEC RULES 203(A) AND 203(B)(3). THE FIRM FAILED TOPROVIDE DOCUMENTARY EVIDENCE THAT IT PERFORMED THESUPERVISORY REVIEWS SET FORTH IN ITS WRITTEN SUPERVISORYPROCEDURES CONCERNING NASD RULES 3350 AND 6130(D)(6) AND SECRULES 200(G) AND 203(B)(1) OF REGULATION SHO. THE FIRM FAILED TOREPORT TO THE ORDER AUDIT TRAIL SYSTEM (OATS) ROUTE REPORTS.THE FIRM REPORTED ROUTE OR COMBINED ORDER/ROUTE REPORTSWITH AN INACCURATE DESTINATION CODE. THE FIRM FAILED TO REPORTINFORMATION REGARDING PURCHASE AND SALE TRANSACTIONSEFFECTED IN MUNICIPAL SECURITIES TO THE REAL-TIME TRANSACTIONREPORTING SYSTEM (RTRS) IN THE MANNER PRESCRIBED BY RULE G-14,RTRS PROCEDURES AND THE RTRS USERS MANUAL; THE FIRM FAILED TOREPORT INFORMATION ABOUT SUCH TRANSACTIONS WITHIN 15 MINUTESOF TIME OF TRADE TO AN RTRS PORTAL. THE FIRM SOLD (BOUGHT)CORPORATE BONDS TO (FROM) CUSTOMERS AND FAILED TO SELL (BUY)SUCH BONDS AT A PRICE THAT WAS FAIR, TAKING INTO CONSIDERATIONALL RELEVANT CIRCUMSTANCES, INCLUDING MARKET CONDITIONS WITHRESPECT TO EACH BOND AT THE TIME OF THE TRANSACTION, THEEXPENSE INVOLVED AND THAT THE FIRM WAS ENTITLED TO A PROFIT. INPAIRS OF TRANSACTIONS, THE FIRM PURCHASED MUNICIPAL SECURITIESFOR ITS OWN ACCOUNT FROM A CUSTOMER AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO A CUSTOMER AT AN AGGREGATEPRICE (INCLUDING ANY MARKDOWN OR MARKUP)THAT WAS NOT FAIR ANDREASONABLE, TAKING INTO CONSIDERATION ALL RELEVANT FACTORS,INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER ORMUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OF THESECURITIES AT THE TIME OF TRANSACTION AND OF ANY SECURITIESEXCHANGED OR TRADED IN CONNECTION WITH THE TRANSACTION, THEEXPENSE INVOLVED IN EFFECTING THE TRANSACTION, THE FACT THATTHE BROKER, DEALER, OR MUNICIPAL SECURITIES DEALER IS ENTITLEDTO A PROFIT, AND THE TOTAL DOLLAR AMOUNT OF THE TRANSACTION.







Initiated By: FINRA






Other Product Type(s): MUNICIPAL SECURITIES, CORPORATE BONDS

SEC RULE 203(B)(3) OF REGULATION SHO, NASD RULES 2110, 2440, 3010,6955(A), INTERPRETATIVE MATERIAL 2440, MSRB RULES G-14, G-17, G-30(A)- SOUTHWEST SECURITIES, INC. HAD A FAIL-TO-DELIVER POSITION AT AREGISTERED CLEARING AGENCY IN A COMMON STOCK, A THRESHOLDSECURITY, FOR 13 CONSECUTIVE SETTLEMENT DAYS AND FAILED TOIMMEDIATELY THEREAFTER CLOSE OUT THE FAIL-TO-DELIVER POSITIONBY PURCHASING SECURITIES OF LIKE KIND AND QUANTITY. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOAPPLICABLE SECURITIES LAWS, REGULATIONS AND NASD RULESCONCERNING SEC RULES 203(A) AND 203(B)(3). THE FIRM FAILED TOPROVIDE DOCUMENTARY EVIDENCE THAT IT PERFORMED THESUPERVISORY REVIEWS SET FORTH IN ITS WRITTEN SUPERVISORYPROCEDURES CONCERNING NASD RULES 3350 AND 6130(D)(6) AND SECRULES 200(G) AND 203(B)(1) OF REGULATION SHO. THE FIRM FAILED TOREPORT TO THE ORDER AUDIT TRAIL SYSTEM (OATS) ROUTE REPORTS.THE FIRM REPORTED ROUTE OR COMBINED ORDER/ROUTE REPORTSWITH AN INACCURATE DESTINATION CODE. THE FIRM FAILED TO REPORTINFORMATION REGARDING PURCHASE AND SALE TRANSACTIONSEFFECTED IN MUNICIPAL SECURITIES TO THE REAL-TIME TRANSACTIONREPORTING SYSTEM (RTRS) IN THE MANNER PRESCRIBED BY RULE G-14,RTRS PROCEDURES AND THE RTRS USERS MANUAL; THE FIRM FAILED TOREPORT INFORMATION ABOUT SUCH TRANSACTIONS WITHIN 15 MINUTESOF TIME OF TRADE TO AN RTRS PORTAL. THE FIRM SOLD (BOUGHT)CORPORATE BONDS TO (FROM) CUSTOMERS AND FAILED TO SELL (BUY)SUCH BONDS AT A PRICE THAT WAS FAIR, TAKING INTO CONSIDERATIONALL RELEVANT CIRCUMSTANCES, INCLUDING MARKET CONDITIONS WITHRESPECT TO EACH BOND AT THE TIME OF THE TRANSACTION, THEEXPENSE INVOLVED AND THAT THE FIRM WAS ENTITLED TO A PROFIT. INPAIRS OF TRANSACTIONS, THE FIRM PURCHASED MUNICIPAL SECURITIESFOR ITS OWN ACCOUNT FROM A CUSTOMER AND/OR SOLD MUNICIPALSECURITIES FOR ITS OWN ACCOUNT TO A CUSTOMER AT AN AGGREGATEPRICE (INCLUDING ANY MARKDOWN OR MARKUP)THAT WAS NOT FAIR ANDREASONABLE, TAKING INTO CONSIDERATION ALL RELEVANT FACTORS,INCLUDING THE BEST JUDGMENT OF THE BROKER, DEALER ORMUNICIPAL SECURITIES DEALER AS TO THE FAIR MARKET VALUE OF THESECURITIES AT THE TIME OF TRANSACTION AND OF ANY SECURITIESEXCHANGED OR TRADED IN CONNECTION WITH THE TRANSACTION, THEEXPENSE INVOLVED IN EFFECTING THE TRANSACTION, THE FACT THATTHE BROKER, DEALER, OR MUNICIPAL SECURITIES DEALER IS ENTITLEDTO A PROFIT, AND THE TOTAL DOLLAR AMOUNT OF THE TRANSACTION.


Resolution:










Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $54,500, ORDERED TO PAY$23,394.08, PLUS INTEREST, IN RESTITUTION TO CUSTOMERS ANDREQUIRED TO REVISE ITS WRITTEN SUPERVISORY PROCEDURESREGARDING COMPLIANCE WITH SEC RULES 203(A) AND 203(B)(3)WITHIN30 BUSINESS DAYS OF ACCEPTANCE OF THIS AWC BY THE NAC. AREGISTERED PRINCIPAL OF THE FIRM SHALL SUBMIT SATISFACTORYPROOF OF PAYMENT OF THE RESTITUTION, OR OF REASONABLE ANDDOCUMENTED EFFORTS UNDERTAKEN TO EFFECT RESTITUTION TOFINRA NO LATER THAN 120 DAYS AFTER ACCEPTANCE OF THIS AWC. ANYUNDISTRIBUTED RESTITUTION AND INTEREST SHALL BE FORWARDED TOTHE APPROPRIATE ESCHEAT, UNCLAIMED PROPERTY OR ABANDONEDPROPERTY FUND FOR THE STATE IN WHICH THE CUSTOMER LASTRESIDED.

CensureMonetary/Fine $54,500.00Disgorgement/Restitution

Disclosure 24 of 53

i


Initiated By: FINRA






Allegations: SEC RULE 10B-10(A)(2), NASD RULES 2110, 3010(A),6230 - SOUTHWESTSECURITIES, INC. FAILED TO REPORT CORPORATE BOND TRANSACTIONSTO THE TRADE REPORTING AND COMPLIANCE ENGINE (TRACE);TRANSACTIONS WERE REPORTED TO TRACE WITHOUT THE CORRECTPRICING INFORMATION AND TRANSACTIONS WERE REPORTED ASBUNCHED TRANSACTIONS WHICH IS NOT PERMITTED BY TRACE. THEFIRM FAILED TO DISCLOSE THE CORRECT CAPACITY ON ALL CUSTOMERCONFIRMATIONS FOR THE TRANSACTIONS. SOUTHWEST REFLECTED ITSCAPACITY AS AGENT WHEN IT HAD ACTED AS PRINCIPAL. THE FIRM FAILEDTO ESTABLISH AND MAINTAIN A SYSTEM TO SUPERVISE THE REPORTINGOF TRACE-ELIGIBLE SECURITIES AND THE DISCLOSURE OF CAPACITY ONCUSTOMER TRANSACTIONS.











Resolution:




No




Initiated By: FINRA






Allegations: SEC RULE 10B-10(A)(2), NASD RULES 2110, 3010(A), 6230 - SOUTHWESTSECURITIES, INC. FAILED TO REPORT CORPORATE BOND TRANSACTIONSTO THE TRADE REPORTING AND COMPLIANCE ENGINE (TRACE);TRANSACTIONS WERE REPORTED TO TRACE WITHOUT THE CORRECTPRICING INFORMATION AND TRANSACTIONS WERE REPORTED ASBUNCHED TRANSACTIONS WHICH IS NOT PERMITTED BY TRACE. THEFIRM FAILED TO DISCLOSE THE CORRECT CAPACITY ON ALL CUSTOMERCONFIRMATIONS FOR THE TRANSACTIONS. THE FIRM FAILED TOESTABLISH AND MAINTAIN A SYSTEM TO SUPERVISE THE REPORTING OFTRACE-ELIGIBLE SECURITIES AND THE DISCLOSURE OF CAPACITY ONCUSTOMER TRANSACTIONS.











Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED AND FINED $45,000.00.



Disclosure 25 of 53

i


Initiated By: FINRA







Allegations: NASD RULES 2110, 3011(A), 3011(B), MSRB RULE G-41 - RESPONDENTFAILED TO DEVELOP AND IMPLEMENT A WRITTEN ANTI-MONEYLAUNDERING (AML) PROGRAM THAT WAS REASONABLY DESIGNED TOACHIEVE AND MONITOR IT'S COMPLIANCE WITH THE REQUIREMENTS OFTHE BANK SECRECY ACT. THE FINDINGS STATED THAT THE FIRM FAILEDTO TIMELY ADDRESS DEFICIENCIES NOTED IN THREE CONSECUTIVESINDEPENDENT TESTS OF ITS AML PROGRAM.



Resolution:


No









Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, SOUTHWESTSECURITIES, INC., CONSENTED TO THE DESCRIBED SANCTIONS AND TOTHE ENTRY OF FINDINGS, THEREFORE, THE FIRM IS CENSURED ANDFINED $75,000.


No



Initiated By: FINRA







Allegations: NASD RULES 2110, 3011(A), 3011(B), MSRB RULE G-41 - RESPONDENTFAILED TO DEVELOP AND IMPLEMENT A WRITTEN ANTI-MONEYLAUNDERING (AML) PROGRAM THAT WAS REASONABLY DESIGNED TOACHIEVE AND MONITOR IT'S COMPLIANCE WITH THE REQUIREMENTS OFTHE BANK SECRECY ACT. THE FINDINGS STATED THAT THE FIRM FAILEDTO TIMELY ADDRESS DEFICIENCIES NOTED IN THREE CONSECUTIVESINDEPENDENT TESTS OF ITS AML PROGRAM.



Resolution:










Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, SOUTHWESTSECURITIES, INC., CONSENTED TO THE DESCRIBED SANCTIONS AND TOTHE ENTRY OF FINDINGS, THEREFORE, THE FIRM IS CENSURED ANDFINED $75,000.00.

Disclosure 26 of 53

i


Initiated By: FINRA




Other Product Type(s): TRACE-ELEIGIBLE SECURITIES, MUNICIPAL SECURITIES

Allegations: SEC RULES 17A-3, 17A-4, NASD RULES 2110, 2320, 3110, 6230(A), 6230(C)(8),MSRB RULES G-14, G-17, G-27(A) - SOUTHWEST SECURITIES, INC. FAILEDTO PRESERVE BROKERAGE ORDER MEMORANDA FOR A PERIOD OF NOTLESS THAN THREE YEARS, THE FIRST TWO IN AN ACCESSIBLE PLACE; ANDFAILED TO SHOW THE DATE OF EXECUTION, THE TIME OF EXECUTION,THE TIME OF ENTRY AND/OR THE TERMS AND CONDITIONS OF EACHORDER ON BROKERAGE ORDER MEMORANDA. IN TRANSACTIONS FOR ORWITH A CUSTOMER, THE FIRM FAILED TO USE REASONABLE DILIGENCE TOASCERTAIN THE BEST INTER-DEALER MARKET AND FAILED TO BUY ORSELL IN SUCH MARKET SO THAT THE RESULTANT PRICES TO ITSCUSTOMERS WERE AS FAVORABLE AS POSSIBLE UNDER PREVAILINGMARKET CONDITIONS. THE FIRM FAILED TO REPORT TO TRACE THECORRECT TIME OF TRADE EXECUTION FOR TRANSACTIONS IN TRACE-ELIGIBLE SECURITIES AND FAILED TO REPORT TO TRACE TRANSACTIONSIN TRACE-ELIGIBLE SECURITIES EXECUTED ON A BUSINESS DAY DURINGTRACE SYSTEM HOURS WITHIN 30 MINUTES OF THE TIME OF EXECUTION.THE FIRM FAILED TO REPORT INFORMATION REGARDING PURCHASE ANDSALE TRANSACTIONS IN MUNICIPAL SECURITIES TO THE REAL-TIMETRANSACTION REPORTING SYSTEM (RTRS) IN THE MANNER PRESCRIBEDBY RULE G-14 RTRS PROCEDURES AND THE RTRS USERS MANUALBECAUSE IT FAILED TO REPORT INFORMATION ABOUT TRANSACTIONSWITHIN 15 MINUTES OF TIME OF TRADE TO AN RTRS PORTAL. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND MSRB RULES CONCERNINGTIMELY REPORTING OF MUNICIPAL SECURITIES TRANSACTIONS.










Other Product Type(s): TRACE-ELEIGIBLE SECURITIES, MUNICIPAL SECURITIES


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $67,500 AND REQUIRED TOREVISE ITS SUPERVISORY PROCEDURES REGARDING THE TIMELYREPORTING OF MUNICIPAL SECURITIES TRANSACTIONS WITHIN 30BUSINESS DAYS OF ACCEPTANCE OF THIS AWC BY THE NAC. NORESTITUTION WAS ORDERED BECAUSE THE FIRM HAD ALREADYPROVIDED THE REQUISITE PRICE IMPROVEMENTS TO THE CUSTOMERSADVERSELY AFFECTED BY THE BEST EXECUTION VIOLATIONS OF NASDRULES 2110 AND 2320.


No




Allegations: SEC RULES 17A-3, 17A-4, NASD RULES 2110, 2320, 3110, 6230(A), 6230(C)(8),MSRB RULES G-14, G-17, G-27(A) - SOUTHWEST SECURITIES, INC. FAILEDTO PRESERVE BROKERAGE ORDER MEMORANDA FOR A PERIOD OF NOTLESS THAN THREE YEARS, THE FIRST TWO IN AN ACCESSIBLE PLACE; ANDFAILED TO SHOW THE DATE OF EXECUTION, THE TIME OF EXECUTION,THE TIME OF ENTRY AND/OR THE TERMS AND CONDITIONS OF EACHORDER ON BROKERAGE ORDER MEMORANDA. IN TRANSACTIONS FOR ORWITH A CUSTOMER, THE FIRM FAILED TO USE REASONABLE DILIGENCE TOASCERTAIN THE BEST INTER-DEALER MARKET AND FAILED TO BUY ORSELL IN SUCH MARKET SO THAT THE RESULTANT PRICES TO ITSCUSTOMERS WERE AS FAVORABLE AS POSSIBLE UNDER PREVAILINGMARKET CONDITIONS. THE FIRM FAILED TO REPORT TO TRACE THECORRECT TIME OF TRADE EXECUTION FOR TRANSACTIONS IN TRACE-ELIGIBLE SECURITIES AND FAILED TO REPORT TO TRACE TRANSACTIONSIN TRACE-ELIGIBLE SECURITIES EXECUTED ON A BUSINESS DAY DURINGTRACE SYSTEM HOURS WITHIN 30 MINUTES OF THE TIME OF EXECUTION.THE FIRM FAILED TO REPORT INFORMATION REGARDING PURCHASE ANDSALE TRANSACTIONS IN MUNICIPAL SECURITIES TO THE REAL-TIMETRANSACTION REPORTING SYSTEM (RTRS) IN THE MANNER PRESCRIBEDBY RULE G-14 RTRS PROCEDURES AND THE RTRS USERS MANUALBECAUSE IT FAILED TO REPORT INFORMATION ABOUT TRANSACTIONSWITHIN 15 MINUTES OF TIME OF TRADE TO AN RTRS PORTAL. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND MSRB RULES CONCERNINGTIMELY REPORTING OF MUNICIPAL SECURITIES TRANSACTIONS.







Initiated By: FINRA


Censure


UNDERTAKING AND FINE 67,500.



Principal Product Type: Options

Other Product Type(s): TRACE ELIGIBLE SECURITIES, MUNCIPAL SECURITIES

SEC RULES 17A-3, 17A-4, NASD RULES 2110, 2320, 3110, 6230(A), 6230(C)(8),MSRB RULES G-14, G-17, G-27(A) - SOUTHWEST SECURITIES, INC. FAILEDTO PRESERVE BROKERAGE ORDER MEMORANDA FOR A PERIOD OF NOTLESS THAN THREE YEARS, THE FIRST TWO IN AN ACCESSIBLE PLACE; ANDFAILED TO SHOW THE DATE OF EXECUTION, THE TIME OF EXECUTION,THE TIME OF ENTRY AND/OR THE TERMS AND CONDITIONS OF EACHORDER ON BROKERAGE ORDER MEMORANDA. IN TRANSACTIONS FOR ORWITH A CUSTOMER, THE FIRM FAILED TO USE REASONABLE DILIGENCE TOASCERTAIN THE BEST INTER-DEALER MARKET AND FAILED TO BUY ORSELL IN SUCH MARKET SO THAT THE RESULTANT PRICES TO ITSCUSTOMERS WERE AS FAVORABLE AS POSSIBLE UNDER PREVAILINGMARKET CONDITIONS. THE FIRM FAILED TO REPORT TO TRACE THECORRECT TIME OF TRADE EXECUTION FOR TRANSACTIONS IN TRACE-ELIGIBLE SECURITIES AND FAILED TO REPORT TO TRACE TRANSACTIONSIN TRACE-ELIGIBLE SECURITIES EXECUTED ON A BUSINESS DAY DURINGTRACE SYSTEM HOURS WITHIN 30 MINUTES OF THE TIME OF EXECUTION.THE FIRM FAILED TO REPORT INFORMATION REGARDING PURCHASE ANDSALE TRANSACTIONS IN MUNICIPAL SECURITIES TO THE REAL-TIMETRANSACTION REPORTING SYSTEM (RTRS) IN THE MANNER PRESCRIBEDBY RULE G-14 RTRS PROCEDURES AND THE RTRS USERS MANUALBECAUSE IT FAILED TO REPORT INFORMATION ABOUT TRANSACTIONSWITHIN 15 MINUTES OF TIME OF TRADE TO AN RTRS PORTAL. THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND MSRB RULES CONCERNINGTIMELY REPORTING OF MUNICIPAL SECURITIES TRANSACTIONS.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $67,500 AND REQUIRED TOREVISE ITS SUPERVISORY PROCEDURES REGARDING THE TIMELYREPORTING OF MUNICIPAL SECURITIES TRANSACTIONS WITHIN 30BUSINESS DAYS OF ACCEPTANCE OF THIS AWC BY THE NAC. NORESTITUTION WAS ORDERED BECAUSE THE FIRM HAD ALREADYPROVIDED THE REQUISITE PRICE IMPROVEMENTS TO THE CUSTOMERSADVERSELY AFFECTED BY THE BEST EXECUTION VIOLATIONS OF NASDRULES 2110 AND 2320.








WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $67,500 AND REQUIRED TOREVISE ITS SUPERVISORY PROCEDURES REGARDING THE TIMELYREPORTING OF MUNICIPAL SECURITIES TRANSACTIONS WITHIN 30BUSINESS DAYS OF ACCEPTANCE OF THIS AWC BY THE NAC. NORESTITUTION WAS ORDERED BECAUSE THE FIRM HAD ALREADYPROVIDED THE REQUISITE PRICE IMPROVEMENTS TO THE CUSTOMERSADVERSELY AFFECTED BY THE BEST EXECUTION VIOLATIONS OF NASDRULES 2110 AND 2320.

Disclosure 27 of 53

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Initiated By: FINRA




Docket/Case Number: E062005004101



Allegations: MSRB RULE G-36 - MEMBER FIRM FAILED TO TIMELY SUBMIT FORMS G-36(OS) TO THE MUNICIPAL SECURITIES RULEMAKING BOARD ("MSRB").



Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, SOUTHWESTSECURITIES, INC., CONSENTED TO THE DESCRIBED SANCTION AND TOTHE ENTRY OF FINDINGS, THEREFORE, THE FIRM IS FINED $5,000.


No




Allegations: ALLEGED MSRB RULE G-36 - MEMBER FIRM FAILED TO TIMELY SUBMITFORMS G36(OS) TO THE MUNICIPAL SECURITIES RULEMAKING BOARD("MSRB").







Initiated By: FINRA




Docket/Case Number: E062005004101



Allegations: ALLEGED MSRB RULE G-36 - MEMBER FIRM FAILED TO TIMELY SUBMITFORMS G36(OS) TO THE MUNICIPAL SECURITIES RULEMAKING BOARD("MSRB").


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, SOUTHWESTSECURITIES, INC. CONSENTED TO THE DESCRIBED SANCTION AND TOTHE ENTRY OF FINDINGS, THEREFORE, THE FIRM IS FINED $5,000.00.



Disclosure 28 of 53

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Allegations: SEC RULE 11AC1-6, NASD RULES 1021, 2110, 3010, 5262, 6955(A) -SOUTHWEST SECURITIES, INC. FAILED TO PROPERLY REGISTER THEFIRM'S DIRECTOR OF REGULATORY OVERSIGHT WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; FAILED TOPROPERLY REGISTER THE FIRM'S HEAD TRADER WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; THE PERSONNELAT THE FIRM DESIGNATED AS BEING RESPONSIBLE FOR THEESTABLISHMENT, MAINTENANCE AND ENFORCEMENT OF THE FIRM'SSUPERVISORY SYSTEM AND WRITTEN SUPERVISORY PROCEDURES WITHRESPECT TO COMPLIANCE WITH APPPLICABLE SECURITIES LAWS,REGULATIONS, AND NASD RULES CONCERNING REGISTRATION FAILED TODETECT THAT INDIVIDUALS WERE NOT PROPERLY REGISTERED ASGENERAL SECURITIES PRINCIPALS AND THUS FAILED TO COMPLY WITHAPPLICABLE REQUIREMENTS FOR REGISTRATION; THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DEISGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND NASD RULES REGARDING SECRULE 11AC1-1, RISKLESS PRINCIPAL TRADE REPORTING, SEC RULE11AC1-5, AND OATS. THE FIRM SUBMITTED QUARTERLY ORDER ROUTINGINFORMATION REPORTS THAT INCORRECTLY DISCLOSED AN "UNSPECIFIED ROUTE VENUE" TO WHICH THE FIRM'S ORDERS WEREROUTED; FAILED TO SUBMIT TO OATS ANY ROUTE REPORTS RELATED TOCANCEL/REPLACE REPORTS THAT WERE REQUIRED TO BE SUBMITTED.THE FIRM, AN ITS/CAES MARKET MAKER, PURCHASED OR SOLDITS/CASES SECURITIES WHETHER IN A PRINCIPAL CPACITY OR AS AGENT,AT A PRICE THAT WAS LOWER THAN THE BID OR HIGHER THAN THE OFFERDISPLAYED FROM AN ITS PARTICIPANT EXCHANGE OR ITS/CAES MARKETMAKER. THE FIRM FAILED TO REPORT TO TRACE TRANSACTIONS INTRACE-ELIGIBLE SECURITIES EXECUTED ON A BUSINESS DAY DURINGTRACE SYSTEM HOURS WITHIN 45 MINUTES OF THE TIME OF EXECUTION;AND THE FIRM'S SUPERVISORY SYSTEM DID NOT PROVIDE FORSUPERVISION REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITHAPPLICABLE SECURITIES LAWS, REGULATIONS AND NASD RULESCONCERNING TRACE TRADE-REPORTING.







Initiated By: NASD







SEC RULE 11AC1-6, NASD RULES 1021, 2110, 3010, 5262, 6955(A) -SOUTHWEST SECURITIES, INC. FAILED TO PROPERLY REGISTER THEFIRM'S DIRECTOR OF REGULATORY OVERSIGHT WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; FAILED TOPROPERLY REGISTER THE FIRM'S HEAD TRADER WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; THE PERSONNELAT THE FIRM DESIGNATED AS BEING RESPONSIBLE FOR THEESTABLISHMENT, MAINTENANCE AND ENFORCEMENT OF THE FIRM'SSUPERVISORY SYSTEM AND WRITTEN SUPERVISORY PROCEDURES WITHRESPECT TO COMPLIANCE WITH APPPLICABLE SECURITIES LAWS,REGULATIONS, AND NASD RULES CONCERNING REGISTRATION FAILED TODETECT THAT INDIVIDUALS WERE NOT PROPERLY REGISTERED ASGENERAL SECURITIES PRINCIPALS AND THUS FAILED TO COMPLY WITHAPPLICABLE REQUIREMENTS FOR REGISTRATION; THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DEISGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND NASD RULES REGARDING SECRULE 11AC1-1, RISKLESS PRINCIPAL TRADE REPORTING, SEC RULE11AC1-5, AND OATS. THE FIRM SUBMITTED QUARTERLY ORDER ROUTINGINFORMATION REPORTS THAT INCORRECTLY DISCLOSED AN "UNSPECIFIED ROUTE VENUE" TO WHICH THE FIRM'S ORDERS WEREROUTED; FAILED TO SUBMIT TO OATS ANY ROUTE REPORTS RELATED TOCANCEL/REPLACE REPORTS THAT WERE REQUIRED TO BE SUBMITTED.THE FIRM, AN ITS/CAES MARKET MAKER, PURCHASED OR SOLDITS/CASES SECURITIES WHETHER IN A PRINCIPAL CPACITY OR AS AGENT,AT A PRICE THAT WAS LOWER THAN THE BID OR HIGHER THAN THE OFFERDISPLAYED FROM AN ITS PARTICIPANT EXCHANGE OR ITS/CAES MARKETMAKER. THE FIRM FAILED TO REPORT TO TRACE TRANSACTIONS INTRACE-ELIGIBLE SECURITIES EXECUTED ON A BUSINESS DAY DURINGTRACE SYSTEM HOURS WITHIN 45 MINUTES OF THE TIME OF EXECUTION;AND THE FIRM'S SUPERVISORY SYSTEM DID NOT PROVIDE FORSUPERVISION REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITHAPPLICABLE SECURITIES LAWS, REGULATIONS AND NASD RULESCONCERNING TRACE TRADE-REPORTING.


Resolution:


No










Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $30,000, JOINTLY ANDSEVERALLY, FINED $130,000 SOLELY, AND REQUIRED TO REVISE THEFIRM'S WRITTEN SUPERVISORY PROCEDURES WITHIN 30 BUSINESS DAYSOF ACCEPTANCE OF THIS AWC BY THE NAC WITH RESPECT TOREGISTRATION REQUIREMENTS, SEC RULES 11AC1-1, 11AC1-5, RISKLESSPRINCIPAL TRADE REPORTING, OATS, AND TRACE TRADE-REPORTING.



Allegations: SEC RULE 11AC1-6, NASD RULES 1021, 2110, 3010, 5262, 6955(A) -SOUTHWEST SECURITIES, INC. FAILED TO PROPERLY REGISTER THEFIRM'S DIRECTOR OF REGULATORY OVERSIGHT WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; FAILED TOPROPERLY REGISTER THE FIRM'S HEAD TRADER WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; THE PERSONNELAT THE FIRM DESIGNATED AS BEING RESPONSIBLE FOR THEESTABLISHMENT, MAINTENANCE AND ENFORCEMENT OF THE FIRM'SSUPERVISORY SYSTEM AND WRITTEN SUPERVISORY PROCEDURES WITHRESPECT TO COMPLIANCE WITH APPPLICABLE SECURITIES LAWS,REGULATIONS, AND NASD RULES CONCERNING REGISTRATION FAILED TODETECT THAT INDIVIDUALS WERE NOT PROPERLY REGISTERED ASGENERAL SECURITIES PRINCIPALS AND THUS FAILED TO COMPLY WITHAPPLICABLE REQUIREMENTS FOR REGISTRATION; THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DEISGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND NASD RULES REGARDING SECRULE 11AC1-1, RISKLESS PRINCIPAL TRADE REPORTING, SEC RULE11AC1-5, AND OATS. THE FIRM SUBMITTED QUARTERLY ORDER ROUTINGINFORMATION REPORTS THAT INCORRECTLY DISCLOSED AN "UNSPECIFIED ROUTE VENUE" TO WHICH THE FIRM'S ORDERS WEREROUTED; FAILED TO SUBMIT TO OATS ANY ROUTE REPORTS RELATED TOCANCEL/REPLACE REPORTS THAT WERE REQUIRED TO BE SUBMITTED.THE FIRM, AN ITS/CAES MARKET MAKER, PURCHASED OR SOLDITS/CASES SECURITIES WHETHER IN A PRINCIPAL CAPACITY OR ASAGENT, AT A PRICE THAT WAS LOWER THAN THE BID OR HIGHER THANTHE OFFER DISPLAYED FROM AN ITS PARTICIPANT EXCHANGE ORITS/CAES MARKET MAKER. THE FIRM FAILED TO REPORT TO TRACETRANSACTIONS IN TRACE-ELIGIBLE SECURITIES EXECUTED ON ABUSINESS DAY DURING TRACE SYSTEM HOURS WITHIN 45 MINUTES OFTHE TIME OF EXECUTION; AND THE FIRM'S SUPERVISORY SYSTEM DIDNOT PROVIDE FOR SUPERVISION REASONABLY DESIGNED TO ACHIEVECOMPLIANCE WITH APPLICABLE SECURITIES LAWS, REGULATIONS ANDNASD RULES CONCERNING TRACE TRADE-REPORTING.







Initiated By: NASD







SEC RULE 11AC1-6, NASD RULES 1021, 2110, 3010, 5262, 6955(A) -SOUTHWEST SECURITIES, INC. FAILED TO PROPERLY REGISTER THEFIRM'S DIRECTOR OF REGULATORY OVERSIGHT WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; FAILED TOPROPERLY REGISTER THE FIRM'S HEAD TRADER WITH SUPERVISORYRESPONSIBILITY AS A GENERAL SECURITIES PRINCIPAL; THE PERSONNELAT THE FIRM DESIGNATED AS BEING RESPONSIBLE FOR THEESTABLISHMENT, MAINTENANCE AND ENFORCEMENT OF THE FIRM'SSUPERVISORY SYSTEM AND WRITTEN SUPERVISORY PROCEDURES WITHRESPECT TO COMPLIANCE WITH APPPLICABLE SECURITIES LAWS,REGULATIONS, AND NASD RULES CONCERNING REGISTRATION FAILED TODETECT THAT INDIVIDUALS WERE NOT PROPERLY REGISTERED ASGENERAL SECURITIES PRINCIPALS AND THUS FAILED TO COMPLY WITHAPPLICABLE REQUIREMENTS FOR REGISTRATION; THE FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DEISGNED TO ACHIEVE COMPLIANCE WITH APPLICABLESECURITIES LAWS, REGULATIONS AND NASD RULES REGARDING SECRULE 11AC1-1, RISKLESS PRINCIPAL TRADE REPORTING, SEC RULE11AC1-5, AND OATS. THE FIRM SUBMITTED QUARTERLY ORDER ROUTINGINFORMATION REPORTS THAT INCORRECTLY DISCLOSED AN "UNSPECIFIED ROUTE VENUE" TO WHICH THE FIRM'S ORDERS WEREROUTED; FAILED TO SUBMIT TO OATS ANY ROUTE REPORTS RELATED TOCANCEL/REPLACE REPORTS THAT WERE REQUIRED TO BE SUBMITTED.THE FIRM, AN ITS/CAES MARKET MAKER, PURCHASED OR SOLDITS/CASES SECURITIES WHETHER IN A PRINCIPAL CAPACITY OR ASAGENT, AT A PRICE THAT WAS LOWER THAN THE BID OR HIGHER THANTHE OFFER DISPLAYED FROM AN ITS PARTICIPANT EXCHANGE ORITS/CAES MARKET MAKER. THE FIRM FAILED TO REPORT TO TRACETRANSACTIONS IN TRACE-ELIGIBLE SECURITIES EXECUTED ON ABUSINESS DAY DURING TRACE SYSTEM HOURS WITHIN 45 MINUTES OFTHE TIME OF EXECUTION; AND THE FIRM'S SUPERVISORY SYSTEM DIDNOT PROVIDE FOR SUPERVISION REASONABLY DESIGNED TO ACHIEVECOMPLIANCE WITH APPLICABLE SECURITIES LAWS, REGULATIONS ANDNASD RULES CONCERNING TRACE TRADE-REPORTING.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED, FINED $30,000, JOINTLY ANDSEVERALLY, FINED $130,000 SOLELY, AND REQUIRED TO REVISE THEFIRM'S WRITTEN SUPERVISORY PROCEDURES WITHIN 30 BUSINESS DAYSOF ACCEPTANCE OF THIS AWC BY THE NAC WITH RESPECT TOREGISTRATION REQUIREMENTS, SEC RULES 11AC1-1, 11AC1-5, RISKLESSPRINCIPAL TRADE REPORTING, OATS, AND TRACE TRADE-REPORTING.



Disclosure 29 of 53

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Allegations: **5/22/06** STIPULATION OF FACTS AND CONSENT TO PENALTY FILED BYNYSE REGULATION DIVISION OF ENFORCEMENT AND PENDINGCONSENTED TO FINDINGS: 1. VIOLATED NYSE RULE 342(B) BY FAILING TOCONDUCT ANNUAL BRANCH OFFICE INSPECTIONS FOR ONE OR MOREBRANCH OFFICES OF THE MEMBER ORGANIZATION;2. VIOLATED NYSE RULE 345(A) BY PERMITTING EMPLOYEES TO ENGAGEIN SECURITIES BUSINESS PRIOR TO THE EFFECTIVE DATES OF THEIRREGISTRATION WITH THE NYSE AS REPRESENTATIVES OF THEORGANIZATION; 3. VIOLATED NYSE RULE 410 BY FAILING TO OBTAINWRITTEN SUPERVISORY APPROVAL FOR ACCOUNT DESIGNATIONCHANGES PRIOR TO EFFECTING SUCH CHANGES; 4. VIOLATED NYSERULE 346(E) BY FAILING TO OBTAIN NYSE APPROVAL FOR DUALEMPLOYMENT STATUS FOR ONE OR MORE SUPERVISORY EMPLOYEES;5. VIOLATED NYSE RULE 351(D) BY FAILING TO ACCURATELY REPORTCUSTOMER COMPLAINTS TO THE NYSE AS REQUIRED UNDER NYSERULES; AND, 6. VIOLATED NYSE RULES 342(A) AND (B) BY FAILING TOEXERCISE REASONABLE SUPERVISION AND CONTROL, INCLUDING ASEPARATE SYSTEM OF FOLLOW UP AND REVIEW, WITH RESPECT TOENSURING THAT: (I) ALL BRANCH OFFICES WERE ANNUALLY INSPECTED,(II) TRADE CORRECTIONS WERE APPROVED IN WRITING PRIOR TOEFFECTING SUCH CHANGES; AND (III) THE FIRM OBTAINED NYSEAPPROVAL FOR DUAL EMPLOYMENT OF CERTAIN SUPERVISORYPERSONNEL. CONSENTED TO SANCTION: CENSURE AND A $100,000 FINE.







Initiated By: NEW YORK STOCK EXCHANGE DIVISION OF ENFORCEMENT




Docket/Case Number: HBD# 06-132



**5/22/06** STIPULATION OF FACTS AND CONSENT TO PENALTY FILED BYNYSE REGULATION DIVISION OF ENFORCEMENT AND PENDINGCONSENTED TO FINDINGS: 1. VIOLATED NYSE RULE 342(B) BY FAILING TOCONDUCT ANNUAL BRANCH OFFICE INSPECTIONS FOR ONE OR MOREBRANCH OFFICES OF THE MEMBER ORGANIZATION;2. VIOLATED NYSE RULE 345(A) BY PERMITTING EMPLOYEES TO ENGAGEIN SECURITIES BUSINESS PRIOR TO THE EFFECTIVE DATES OF THEIRREGISTRATION WITH THE NYSE AS REPRESENTATIVES OF THEORGANIZATION; 3. VIOLATED NYSE RULE 410 BY FAILING TO OBTAINWRITTEN SUPERVISORY APPROVAL FOR ACCOUNT DESIGNATIONCHANGES PRIOR TO EFFECTING SUCH CHANGES; 4. VIOLATED NYSERULE 346(E) BY FAILING TO OBTAIN NYSE APPROVAL FOR DUALEMPLOYMENT STATUS FOR ONE OR MORE SUPERVISORY EMPLOYEES;5. VIOLATED NYSE RULE 351(D) BY FAILING TO ACCURATELY REPORTCUSTOMER COMPLAINTS TO THE NYSE AS REQUIRED UNDER NYSERULES; AND, 6. VIOLATED NYSE RULES 342(A) AND (B) BY FAILING TOEXERCISE REASONABLE SUPERVISION AND CONTROL, INCLUDING ASEPARATE SYSTEM OF FOLLOW UP AND REVIEW, WITH RESPECT TOENSURING THAT: (I) ALL BRANCH OFFICES WERE ANNUALLY INSPECTED,(II) TRADE CORRECTIONS WERE APPROVED IN WRITING PRIOR TOEFFECTING SUCH CHANGES; AND (III) THE FIRM OBTAINED NYSEAPPROVAL FOR DUAL EMPLOYMENT OF CERTAIN SUPERVISORYPERSONNEL. CONSENTED TO SANCTION: CENSURE AND A $100,000 FINE.


Resolution:


Sanction Details: **6/29/06** DECISION 06-132 ISSUED BY NYSE HEARING BOARDDECISION: VIOLATED NYSE RULE 342(B) BY FAILING TO CONDUCT ANNUALBRANCH OFFICE INSPECTIONS FOR ONE OR MORE BRANCH OFFICES;VIOLATED NYSE RULE 345(A) BY PERMITTING EMPLOYEES TO ENGAGE INSECURITIES BUSINESS PRIOR TO THE EFFECTIVE DATES OF THEIRREGISTRATION; VIOLATED NYSE RULE 410 BY FAILING TO OBTAINWRITTEN SUPERVISORY APPROVAL FOR ACCOUNT DESIGNATIONCHANGES PRIOR TO EFFECTING SUCH CHANGES; VIOLATED NYSE RULE346(E) BY FAILING TO OBTAIN NYSE APPROVAL FOR DUAL EMPLOYMENTSTATUS FOR ONE OR MORE SUPERVISORY EMPLOYEES; VIOLATED NYSERULE 351(D) BY FAILING TO ACCURATELY REPORT CUSTOMERCOMPLAINTS TO THE NYSE; AND VIOLATED NYSE RULES 342(A) AND (B) BYFAILING TO EXERCISE REASONABLE SUPERVISION AND CONTROL,INCLUDING A SEPARATE SYSTEM OF FOLLOW UP AND REVIEW, WITHRESPECT TO ENSURING THAT: (I) ALL BRANCH OFFICES WERE ANNUALLYINSPECTED, (II) TRADE CORRECTIONS WERE APPROVED IN WRITINGPRIOR TO EFFECTING SUCH CHANGES; AND (III) THE FIRM OBTAINEDNYSE APPROVAL FOR DUAL EMPLOYMENT OF CERTAIN SUPERVISORYPERSONNEL. SANCTION: THE HEARING BOARD IMPOSED THE SANCTION,CONSENTED TO BY SOUTHWEST SECURITIES, INC., OF A CENSURE AND A$100,000 FINE.


Decision






**6/29/06** DECISION 06-132 ISSUED BY NYSE HEARING BOARDDECISION: VIOLATED NYSE RULE 342(B) BY FAILING TO CONDUCT ANNUALBRANCH OFFICE INSPECTIONS FOR ONE OR MORE BRANCH OFFICES;VIOLATED NYSE RULE 345(A) BY PERMITTING EMPLOYEES TO ENGAGE INSECURITIES BUSINESS PRIOR TO THE EFFECTIVE DATES OF THEIRREGISTRATION; VIOLATED NYSE RULE 410 BY FAILING TO OBTAINWRITTEN SUPERVISORY APPROVAL FOR ACCOUNT DESIGNATIONCHANGES PRIOR TO EFFECTING SUCH CHANGES; VIOLATED NYSE RULE346(E) BY FAILING TO OBTAIN NYSE APPROVAL FOR DUAL EMPLOYMENTSTATUS FOR ONE OR MORE SUPERVISORY EMPLOYEES; VIOLATED NYSERULE 351(D) BY FAILING TO ACCURATELY REPORT CUSTOMERCOMPLAINTS TO THE NYSE; AND VIOLATED NYSE RULES 342(A) AND (B) BYFAILING TO EXERCISE REASONABLE SUPERVISION AND CONTROL,INCLUDING A SEPARATE SYSTEM OF FOLLOW UP AND REVIEW, WITHRESPECT TO ENSURING THAT: (I) ALL BRANCH OFFICES WERE ANNUALLYINSPECTED, (II) TRADE CORRECTIONS WERE APPROVED IN WRITINGPRIOR TO EFFECTING SUCH CHANGES; AND (III) THE FIRM OBTAINEDNYSE APPROVAL FOR DUAL EMPLOYMENT OF CERTAIN SUPERVISORYPERSONNEL. SANCTION: THE HEARING BOARD IMPOSED THE SANCTION,CONSENTED TO BY SOUTHWEST SECURITIES, INC., OF A CENSURE AND A$100,000 FINE.

Regulator Statement **7/26/06** THE DECISION IS NOW FINAL AND IS EFFECTIVE IMMEDIATELY.CONTACT: PEGGY GERMINO 212-656-8450.


Allegations: **5/22/06** STIPULATION OF FACTS AND CONSENT TO PENALTY FILED BYNYSE REGULATION DIVISION OF ENFORCEMENT AND PENDINGCONSENTED TO FINDINGS: 1. VIOLATED NYSE RULE 342(B) BY FAILING TOCONDUCT ANNUAL BRANCH OFFICE INSPECTIONS FOR ONE OR MOREBRANCH OFFICES OF THE MEMBER ORGANIZATION; 2. VIOLATED NYSERULE 345(A) BY PERMITTING EMPLOYEES TO ENGAGE IN SECURITIESBUSINESS PRIOR TO THE EFFECTIVE DATES OF THEIR REGISTRATIONWITH THE NYSE AS REPRESENTATIVES OF THE ORGANIZATION; 3.VIOLATED NYSE RULE 410 BY FAILING TO OBTAIN WRITTEN SUPERVISORYAPPROVAL FOR ACCOUNT DESIGNATION CHANGES PRIOR TO EFFECTINGSUCH CHANGES; 4. VIOLATED NYSE RULE 346(E) BY FAILING TO OBTAINNYSE APPROVAL FOR DUAL EMPLOYMENT STATUS FOR ONE OR MORESUPERVISORY EMPLOYEES; 5. VIOLATED NYSE RULE 351(D) BY FAILINGTO ACCURATELY REPORT CUSTOMER COMPLAINTS TO THE NYSE ASREQUIRED UNDER NYSE RULES; AND, 6. VIOLATED NYSE RULES 342(A)AND (B) BY FAILING TO EXERCISE REASONABLE SUPERVISION ANDCONTROL, INCLUDING A SEPARATE SYSTEM OF FOLLOW UP AND REVIEW,WITH RESPECT TO ENSURING THAT: (I) ALL BRANCH OFFICES WEREANNUALLY INSPECTED, (II) TRADE CORRECTIONS WERE APPROVED INWRITING PRIOR TO EFFECTING SUCH CHANGES; AND (III) THE FIRMOBTAINED NYSE APPROVAL FOR DUAL EMPLOYMENT OF CERTAINSUPERVISORY PERSONNEL. CONSENTED TO SANCTION: CENSURE AND A$100,000 FINE.







Initiated By: NEW YORK STOCK EXCHANGE





Docket/Case Number: HBD# 06-132



**5/22/06** STIPULATION OF FACTS AND CONSENT TO PENALTY FILED BYNYSE REGULATION DIVISION OF ENFORCEMENT AND PENDINGCONSENTED TO FINDINGS: 1. VIOLATED NYSE RULE 342(B) BY FAILING TOCONDUCT ANNUAL BRANCH OFFICE INSPECTIONS FOR ONE OR MOREBRANCH OFFICES OF THE MEMBER ORGANIZATION; 2. VIOLATED NYSERULE 345(A) BY PERMITTING EMPLOYEES TO ENGAGE IN SECURITIESBUSINESS PRIOR TO THE EFFECTIVE DATES OF THEIR REGISTRATIONWITH THE NYSE AS REPRESENTATIVES OF THE ORGANIZATION; 3.VIOLATED NYSE RULE 410 BY FAILING TO OBTAIN WRITTEN SUPERVISORYAPPROVAL FOR ACCOUNT DESIGNATION CHANGES PRIOR TO EFFECTINGSUCH CHANGES; 4. VIOLATED NYSE RULE 346(E) BY FAILING TO OBTAINNYSE APPROVAL FOR DUAL EMPLOYMENT STATUS FOR ONE OR MORESUPERVISORY EMPLOYEES; 5. VIOLATED NYSE RULE 351(D) BY FAILINGTO ACCURATELY REPORT CUSTOMER COMPLAINTS TO THE NYSE ASREQUIRED UNDER NYSE RULES; AND, 6. VIOLATED NYSE RULES 342(A)AND (B) BY FAILING TO EXERCISE REASONABLE SUPERVISION ANDCONTROL, INCLUDING A SEPARATE SYSTEM OF FOLLOW UP AND REVIEW,WITH RESPECT TO ENSURING THAT: (I) ALL BRANCH OFFICES WEREANNUALLY INSPECTED, (II) TRADE CORRECTIONS WERE APPROVED INWRITING PRIOR TO EFFECTING SUCH CHANGES; AND (III) THE FIRMOBTAINED NYSE APPROVAL FOR DUAL EMPLOYMENT OF CERTAINSUPERVISORY PERSONNEL. CONSENTED TO SANCTION: CENSURE AND A$100,000 FINE.


Resolution:


Sanction Details: **6/29/06** DECISION 06-132 ISSUED BY NYSE HEARING BOARD DECISION:VIOLATED NYSE RULE 342(B) BY FAILING TO CONDUCT ANNUAL BRANCHOFFICE INSPECTIONS FOR ONE OR MORE BRANCH OFFICES; VIOLATEDNYSE RULE 345(A) BY PERMITTING EMPLOYEES TO ENGAGE INSECURITIES BUSINESS PRIOR TO THE EFFECTIVE DATES OF THEIRREGISTRATION; VIOLATED NYSE RULE 410 BY FAILING TO OBTAINWRITTEN SUPERVISORY APPROVAL FOR ACCOUNT DESIGNATIONCHANGES PRIOR TO EFFECTING SUCH CHANGES; VIOLATED NYSE RULE346(E) BY FAILING TO OBTAIN NYSE APPROVAL FOR DUAL EMPLOYMENTSTATUS FOR ONE OR MORE SUPERVISORY EMPLOYEES; VIOLATED NYSERULE 351(D) BY FAILING TO ACCURATELY REPORT CUSTOMERCOMPLAINTS TO THE NYSE; AND VIOLATED NYSE RULES 342(A) AND (B) BYFAILING TO EXERCISE REASONABLE SUPERVISION AND CONTROL,INCLUDING A SEPARATE SYSTEM OF FOLLOW UP AND REVIEW, WITHRESPECT TO ENSURING THAT: (I) ALL BRANCH OFFICES WERE ANNUALLYINSPECTED, (II) TRADE CORRECTIONS WERE APPROVED IN WRITINGPRIOR TO EFFECTING SUCH CHANGES; AND (III) THE FIRM OBTAINEDNYSE APPROVAL FOR DUAL EMPLOYMENT OF CERTAIN SUPERVISORYPERSONNEL. SANCTION: THE HEARING BOARD IMPOSED THE SANCTION,CONSENTED TO BY SOUTHWEST SECURITIES, INC., OF A CENSURE AND A$100,000 FINE.

Firm Statement **07/26/2006 THE DECISION IS NOW FINAL AND EFFECTIVE IMMEDIATELY.


Decision






Disclosure 30 of 53

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Docket/Case Number: HPD# 05-157



Allegations: **9/28/05**STIPULATION AND CONSENT TO PENALTY FILED BY NYSEDIVISION OF ENFORCEMENT AND PENDING CONSENTED TO FINDINGS:1.VIOLATED EXCHANGE RULE 410A BY FAILING TO SUBMIT ACCURATETRADING INFORMATION THROUGH THE SUBMISSION OF ELECTRONICBLUE SHEETS IN RESPONSE TO ONE OR MORE REQUESTS FOR SUCHINFORMATION BY THE EXCHANGE;2.VIOLATED EXCHANGE RULE 401 BYFAILING TO ADHERE TO THE PRINCIPLES OF GOOD BUSINESS PRACTICEIN THE CONDUCT OF THEIR BUSINESS AFFAIRS IN THAT IT SUBMITTEDINACCURATE TRADING INFORMATION ON ELECTRONIC BLUE SHEETS INRESPONSE TO ONE OR MORE REQUESTS FOR SUCH INFORMATION BYTHE EXCHANGE; AND 3.VIOLATED EXCHANGE RULES 342 BY FAILING TOESTABLISH AND MAINTAIN APPROPRIATE SYSTEMS AND PROCEDURESFOR THE SUPERVISION AND CONTROL OF AREAS RESPONSIBLE FORCOMPLYING WITH ELECTRONIC BLUE SHEET REPORTINGREQUIREMENTS, AND FAILED TO ESTABLISH A SEPARATE SYSTEM OFFOLLOW-UP AND REVIEW TO REASONABLY ENSURE COMPLIANCE WITHEXCHANGE RULES RELATING TO THE PREPARATION AND SUBMISSION OFELECTRONIC BLUE SHEETS.STIPULATED SANCTION:THE IMPOSITION BY THE EXCHANGE OF ACENSURE, A $300,000 FINE AND A REQUIREMENT THAT RESPONDENT WILLCONDUCT A VALIDATION OF ALL REQUIRED BLUE SHEET DATA ELEMENTSIN ACCORDANCE WITH ISG REGULATORY MEMORANDUM, ISG 2005-01.



Resolution:


Decision







Sanction Details: **1/5/06** DECISION 05-157 ISSUED BY NYSE HEARING PANELDECISION: VIOLATED NYSE RULE 410A BY FAILING TO SUBMIT ACCURATETRADING INFORMATION THROUGH THE SUBMISSION OF ELECTRONICBLUE SHEETS; VIOLATED NYSE RULE 401 BY SUBMITTING INACCURATETRADING INFORMATION ON ELECTRONIC BLUE SHEETS; VIOLATED NYSERULE 342 BY FAILING TO ESTABLISH AND MAINTAIN APPROPRIATESYSTEMS AND PROCEDURES FOR THE SUPERVISION AND CONTROL OFAREAS RESPONSIBLE FOR COMPLYING WITH ELECTRONIC BLUE SHEETREPORTING REQUIREMENTS AND FAILING TO ESTABLISH A SEPARATESYSTEM OF FOLLOW-UP AND REVIEW TO REASONABLY ENSURECOMPLIANCE WITH NYSE RULES RELATING TO THE PREPARATION ANDSUBMISSION OF ELECTRONIC BLUE SHEETS. -CONSENT TO CENSURE,FINE OF $300,000, AND A REQUIREMENT TO CONDUCT VALIDATION OF ALLREQUIRED BLUE SHEET DATA ELEMENTS, AND UNDERTAKING TO INFORMNYSE IN WRITING THAT VALIDATION HAS BEEN COMPLETED.

Regulator Statement **2/17/06**THE DECISION IS NOW FINAL AND EFFECTIVEIMMEDIATELY.CONTACT:PEGGY GERMINO AT 212-656-8450



Allegations: **9/28/05**STIPULATION AND CONSENT TO PENALTY FILED BY NYSEDIVISION OF ENFORCEMENT AND PENDING CONSENTED TO FINDINGS:1.VIOLATED EXCHANGE RULE 410A BY FAILING TO SUBMIT ACCURATETRADING INFORMATION THROUGH THE SUBMISSION OF ELECTRONICBLUE SHEETS IN RESPONSE TO ONE OR MORE REQUESTS FOR SUCHINFORMATION BY THE EXCHANGE;2.VIOLATED EXCHANGE RULE 401 BYFAILING TO ADHERE TO THE PRINCIPLES OF GOOD BUSINESS PRACTICEIN THE CONDUCT OF THEIR BUSINESS AFFAIRS IN THAT IT SUBMITTEDINACCURATE TRADING INFORMATION ON ELECTRONIC BLUE SHEETS INRESPONSE TO ONE OR MORE REQUESTS FOR SUCH INFORMATION BYTHE EXCHANGE; AND 3.VIOLATED EXCHANGE RULES 342 BY FAILING TOESTABLISH AND MAINTAIN APPROPRIATE SYSTEMS AND PROCEDURESFOR THE SUPERVISION AND CONTROL OF AREAS RESPONSIBLE FORCOMPLYING WITH ELECTRONIC BLUE SHEET REPORTINGREQUIREMENTS, AND FAILED TO ESTABLISH A SEPARATE SYSTEM OFFOLLOW-UP AND REVIEW TO REASONABLY ENSURE COMPLIANCE WITHEXCHANGE RULES RELATING TO THE PREPARATION AND SUBMISSION OFELECTRONIC BLUE SHEETS. STIPULATED SANCTION:THE IMPOSITION BYTHE EXCHANGE OF A CENSURE, A $300,000 FINE AND A REQUIREMENTTHAT RESPONDENT WILL CONDUCT A VALIDATION OF ALL REQUIRED BLUESHEET DATA ELEMENTS IN ACCORDANCE WITH ISG REGULATORYMEMORANDUM, ISG 2005-01.











Docket/Case Number: HPD # 05-157



**9/28/05**STIPULATION AND CONSENT TO PENALTY FILED BY NYSEDIVISION OF ENFORCEMENT AND PENDING CONSENTED TO FINDINGS:1.VIOLATED EXCHANGE RULE 410A BY FAILING TO SUBMIT ACCURATETRADING INFORMATION THROUGH THE SUBMISSION OF ELECTRONICBLUE SHEETS IN RESPONSE TO ONE OR MORE REQUESTS FOR SUCHINFORMATION BY THE EXCHANGE;2.VIOLATED EXCHANGE RULE 401 BYFAILING TO ADHERE TO THE PRINCIPLES OF GOOD BUSINESS PRACTICEIN THE CONDUCT OF THEIR BUSINESS AFFAIRS IN THAT IT SUBMITTEDINACCURATE TRADING INFORMATION ON ELECTRONIC BLUE SHEETS INRESPONSE TO ONE OR MORE REQUESTS FOR SUCH INFORMATION BYTHE EXCHANGE; AND 3.VIOLATED EXCHANGE RULES 342 BY FAILING TOESTABLISH AND MAINTAIN APPROPRIATE SYSTEMS AND PROCEDURESFOR THE SUPERVISION AND CONTROL OF AREAS RESPONSIBLE FORCOMPLYING WITH ELECTRONIC BLUE SHEET REPORTINGREQUIREMENTS, AND FAILED TO ESTABLISH A SEPARATE SYSTEM OFFOLLOW-UP AND REVIEW TO REASONABLY ENSURE COMPLIANCE WITHEXCHANGE RULES RELATING TO THE PREPARATION AND SUBMISSION OFELECTRONIC BLUE SHEETS. STIPULATED SANCTION:THE IMPOSITION BYTHE EXCHANGE OF A CENSURE, A $300,000 FINE AND A REQUIREMENTTHAT RESPONDENT WILL CONDUCT A VALIDATION OF ALL REQUIRED BLUESHEET DATA ELEMENTS IN ACCORDANCE WITH ISG REGULATORYMEMORANDUM, ISG 2005-01.


Resolution:


Sanction Details: **1/5/06** DECISION 05-157 ISSUED BY NYSE HEARING PANEL DECISION:VIOLATED NYSE RULE 410A BY FAILING TO SUBMIT ACCURATE TRADINGINFORMATION THROUGH THE SUBMISSION OF ELECTRONIC BLUESHEETS; VIOLATED NYSE RULE 401 BY SUBMITTING INACCURATETRADING INFORMATION ON ELECTRONIC BLUE SHEETS; VIOLATED NYSERULE 342 BY FAILING TO ESTABLISH AND MAINTAIN APPROPRIATESYSTEMS AND PROCEDURES FOR THE SUPERVISION AND CONTROL OFAREAS RESPONSIBLE FOR COMPLYING WITH ELECTRONIC BLUE SHEETREPORTING REQUIREMENTS AND FAILING TO ESTABLISH A SEPARATESYSTEM OF FOLLOW-UP AND REVIEW TO REASONABLY ENSURECOMPLIANCE WITH NYSE RULES RELATING TO THE PREPARATION ANDSUBMISSION OF ELECTRONIC BLUE SHEETS. -CONSENT TO CENSURE,FINE OF $300,000, AND A REQUIREMENT TO CONDUCT VALIDATION OF ALLREQUIRED BLUE SHEET DATA ELEMENTS, AND UNDERTAKING TO INFORMNYSE IN WRITING THAT VALIDATION HAS BEEN COMPLETED.


Decision

Disclosure 31 of 53

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Initiated By: NASD




Docket/Case Number: CLG050074



Allegations: NASD CONDUCT RULES 2110 AND 3010, NASD MARKETPLACE RULE5220(E); RESPONDENT MEMBER REGISTERED AS AN INTERMARKETTRADING SYSTEM/COMPUTER ASSISTED EXECUTION SYSTEM("ITS/CAES") MARKET MAKER FAILED TO MAINTAIN CONTINUOUS TWO-SIDED QUOTATIONS IN THE ABSENCE OF A GRANT OF EXCUSEDWITHDRAWAL OR A FUNCIONAL EXCUSED WITHDRAWAL BY NASD; ITSSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOTHE APPLICABLE SECURITIES LAWS AND REGULATIONS CONCERNINGTHE MAINTENANCE OF CONTINUOUS TWO-SIDED QUOTATIONS INITS/CAES.



Resolution:

Other Sanctions Ordered: AN UNDERTAKING TO REVISE THE FIRM'S WRITTEN SUPERVISORYPROCEDURES WITH RESPECT TO THE MAINTENANCE OF CONTINUOUSTWO-SIDED QUOTATIONS IN ITS/CAES.

Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, RESPONDENT FIRMCONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OFFINDINGS; THEREFORE, FIRM IS CENSURED AND FINED $10,000.


No



i101©2020 FINRA. All rights reserved. Report about HILLTOP SECURITIES INC.




https://www.finra.org/rules-guidance/oversight-enforcement/finra-disciplinary-actions?search=CLG050074



Initiated By: NASD




Docket/Case Number: CLG050074



Allegations: NASD CONDUCT RULES 2110 AND 3010, NASD MARKETPLACE RULE5220(E); RESPONDENT MEMBER REGISTERED AS AN INTERMARKETTRADING SYSTEM/COMPUTER ASSISTED EXECUTION SYSTEM("ITS/CAES") MARKET MAKER FAILED TO MAINTAIN CONTINUOUS TWO-SIDED QUOTATIONS IN THE ABSENCE OF A GRANT OF EXCUSEDWITHDRAWAL OR A FUNCTIONAL EXCUSED WITHDRAWAL BY NASD; ITSSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOTHE APPLICABLE SECURITIES LAWS AND REGULATIONS CONCERNINGTHE MAINTENANCE OF CONTINUOUS TWO-SIDED QUOTATIONS INITS/CAES.



Resolution:

Other Sanctions Ordered: AN UNDERTAKING TO REVISE THE FIRM'S WRITTEN SUPERVISORYPROCEDURES WITH RESPECT TO THE MAINTENANCE OF CONTINUOUSTWO-SIDED QUOTATIONS IN ITS/CAES.




Disclosure 32 of 53

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https://www.finra.org/rules-guidance/oversight-enforcement/finra-disciplinary-actions?search=CLG050074






Docket/Case Number: HPD#: 04-154



Allegations: **9/24/2004**STIPULATION & CONSENT TO PENALTY FILED BY NYSEDIVISION OF ENFORCEMENT CONSENTED TO FINDINGS:WITHOUTADMITTING OR DENYING GUILT SOUTHWEST SECURITIES CONSENTS TOFINDINGS BY THE HEARING PANEL THAT THE FIRM:1.VIOLATED EXCHANGERULE 342 BY FAILING TO REASONABLY SUPERVISE ITS BUSINESSACTIVITIES & TO ESTABLISH & MAINTAIN APPROPRIATE PROCEDURES FORSUPERVISION & CONTROL WITH RESPECT TO ITS BUSINESS ACTIVITIESINVOLVING THE TRADING OF MUTUAL FUNDS. 2.VIOLATED SECTION 17AOF THE EXCHANGE ACT SEC RULES 17A-3 AND 17A-4 & EXCHANGE RULE440 IN THAT IT FAILED TO MAKE & PRESERVE ACCURATE BOOKS &RECORDS REFLECTING ORDERS FOR MUTUAL FUND TRANSACTIONS BYITS HEDGE FUND CUSTOMERS. 3.VIOLATED SECTION 17(A) OF THEEXCHANGE ACT & SEC RULE 17A-4 & EXCHANGE RULE 440 BY FAILING TOPRESERVE FOR A PERIOD OF THREE YEARS &/OR PRESERVE IN ANEASILY ACCESSIBLE PLACE FOR TWO YEARS,RECORDS OF ELECTRONICCOMMUNICATIONS RELATING TO THE BUSINESS OF THE FIRM.4.ENGAGEDIN CONDUCT INCONSISTENT WITH JUST & EQUITABLE PRINCIPLES OFTRADE IN THAT THE FIRM THROUGH CERTAIN OF ITS BROKERS WITHRESPECT TO CERTAIN MUTUAL FUND TRANSACTIONS:A.PURCHASEDSOLD OR REDEEMED SHARES OF MUTUAL FUNDS AT A PRICE WHICH WASNOT BASED ON THE CURRENT NET ASSET VALUE OF SUCH SECURITYNEXT COMPUTED AFTER RECEIPT OF A TENDER OF SUCH SECURITY FORREDEMPTION OR OF AN ORDER TO PURCHASE OR SELL SUCH SECURITYIN VIOLATION OF APPLICABLE REGULATORY REQUIREMENTS OF RULE22C1 PROMULGATED UNDER THE INVESTMENT COMPANY ACT OF 1940;AND B.IMPROPERLY PURCHASED SOLD OR REDEEMED SHARES OFMUTUAL FUNDS AFTER THE CLOSE OF THE MARKET AT THE SHARE PRICEPRIOR TO CLOSE, RATHER THAN AT THE NEXT DAY’S SHARE PRICE,TO THE DETRIMENT OF THE MUTUAL FUND COMPANIES AND THEIRSHAREHOLDERS.STIPULATED SANCTION:THE IMPOSITION BY THEEXCHANGE OF A PENALTY OF A CENSURE, A TOTAL PAYMENT IN THEAMOUNT OF $10,000,000, CONSISTING OF $8,000,000 AS A PENALTY AND$2,000,000 AS DISGORGEMENT AND PREJUDGMENT INTEREST AND ANAPPROPRIATE UNDERTAKING.









Resolution:


Sanction Details: **9/30/04**EXCHANGE HEARING PANEL DECISION 04-154 DECISION:VIOLATED EXCHANGE RULE 342 BY FAILING TO REASONABLY SUPERVISEITS BUSINESS ACTIVITIES, AND TO ESTABLISH AND MAINTAINAPPROPRIATE PROCEDURES FOR SUPERVISION AND CONTROL WITHRESPECT TO ITS BUSINESS ACTIVITIES INVOLVING THE TRADING OFMUTUAL FUNDS; VIOLATED SECTION 17(A) OF THE EXCHANGE ACT, SECRULES 17A-3 AND 17A-4 AND EXCHANGE RULE 440 IN THAT IT FAILED TOMAKE AND PRESERVE ACCURATE BOOKS AND RECORDS REFLECTINGORDERS FOR MUTUAL FUND TRANSACTIONS BY ITS HEDGE FUNDCUSTOMERS; VIOLATED SECTION 17(A) OF THE EXCHANGE ACT AND SECRULE 17A-4 AND EXCHANGE RULE 440 BY FAILING TO PRESERVE FOR APERIOD OF THREE YEARS AND/OR PRESERVE IN AN EASILY ACCESSIBLEPLACE FOR TWO YEARS, RECORDS OF ELECTRONIC COMMUNICATIONSRELATING TO THE BUSINESS OF THE FIRM; ENGAGED IN CONDUCTINCONSISTENT WITH JUST AND EQUITABLE PRINCIPLES OF TRADE INTHAT THE FIRM, THROUGH CERTAIN OF ITS BROKERS WITH RESPECT TOCERTAIN MUTUAL FUND TRANSACTIONS: (A) PURCHASED, SOLD ORREDEEMED SHARES OF MUTUAL FUNDS AT A PRICE WHICH WAS NOTBASED ON THE CURRENT NET ASSET VALUE OF SUCH SECURITY NEXTCOMPUTED AFTER RECEIPT OF A TENDER OF SUCH SECURITY FORREDEMPTION OR OF AN ORDER TO PURCHASE OR SELL SUCH SECURITY,IN VIOLATION OF APPLICABLE REGULATORY REQUIREMENTS OF RULE22(C)1 PROMULGATED UNDER THE INVESTMENT COMPANY ACT OF 1940;AND (B) IMPROPERLY PURCHASED, SOLD OR REDEEMED SHARES OFMUTUAL FUNDS AFTER THE CLOSE OF THE MARKET, AT THE SHARE PRICEPRIOR TO CLOSE, RATHER THAN AT THE NEXT DAYS SHARE PRICE, TOTHE DETRIMENT OF THE MUTUAL FUND COMPANIES AND THEIRSHAREHOLDERS. CONSENT TO CENSURE, A TOTAL PAYMENT OF$10,000,000 AND AN UNDERTAKING. THIS DECISION IS FINAL.

Regulator Statement **1/14/05**THE DECISION IS NOW FINAL AND EFFECTIVEIMMEDIATELY.CONTACT: MICHELE VAN TASSEL 212-656-5340

Sanctions Ordered: CensureMonetary/Fine $10,000,000.00

Decision













Allegations: 9/24/04-STIPULATION & CONSENT TO PENALTY FILED BY NYSE DIVISION OFENFORCEMENT CONSENTED TO FINDINGS:WITHOUT ADMITTING ORDENYING GUILT, SOUTHWEST SECURITIES CONSENTS TO FINDINGS BYTHE HEARING PANEL THAT THE FIRM:1. VIOLATED EXCHANGE RULE 342 BYFAILING TO REASONABLY SUPERVISE ITS BUSINESS ACTIVITIES & TOESTABLISH & MAINTAIN APPROPRIATE PROCEDURES FOR SUPERVISION &CONTROL WITH RESPECT TO ITS BUSINESS ACTIVITIES INVOLVING THETRADING OF MUTUAL FUNDS. 2. VIOLATED SECTION 17A OF THEEXCHANGE ACT SEC RULES 17A-3 AND 17A-4 & EXCHANGE RULE 440 INTHAT IT FAILED TO MAKE & PRESERVE ACCURATE BOOKS & RECORDSREFLECTING ORDERS FOR MUTUAL FUND TRANSACTIONS BY ITS HEDGEFUND CUSTOMERS.3. VIOLATED SECTION 17(A) OF THE EXCHANGE ACT &SEC RULE 17A-4 & EXCHANGE RULE 440 BY FAILING TO PRESERVE FOR APERIOD OF THREE YEARS &/OR PRESERVE IN AN EASILY ACCESSIBLEPLACE FOR TWO YEARS, RECORDS OF ELECTRONIC COMMUNICATIONSRELATING TO THE BUSINESS OF THE FIRM. 4. ENGAGED IN CONDUCTINCONSISTENT WITH JUST & EQUITABLE PRINCIPLES OF TRADE IN THATTHE FIRM THROUGH CERTAIN OF ITS BROKERS WITH RESPECT TOCERTAIN MUTUAL FUND TRANSACTIONS:A. PURCHASED, SOLD, ORREDEEMED SHARES OF MUTUAL FUNDS AT A PRICE WHICH WAS NOTBASED ON THE CURRENT NET ASSET VALUE OF SUCH SECURITY NEXTCOMPUTED AFTER RECEIPT OF A TENDER OF SUCH SECURITY FORREDEMPTION OR OF AN ORDER TO PURCHASE OR SELL SUCH SECURITYIN VIOLATION OF APPLICABLE REGULATORY REQUIREMENTS OF RULE22C1 PROMULGATED UNDER THE INVESTMENT COMPANY ACT OF 1940;AND B. IMPROPERLY PURCHASED,SOLD OR REDEEMED SHARES OFMUTUAL FUNDS AFTER THE CLOSE OF THE MARKET AT THE SHARE PRICEPRIOR TO CLOSE, RATHER THAN AT THE NEXT DAY & #8217; S SHAREPRICE,TO THE DETRIMENT OF THE MUTUAL FUND COMPANIES AND THEIRSHAREHOLDERS.STIPULATED SANCTION:THE IMPOSITION BY THEEXCHANGE OF A PENALTY OF A CENSURE,A TOTAL PAYMENT IN THEAMOUNT OF $10,000,000 CONSISTING OF $8,000,000 AS A PENALTY AND$2,000,000 AS DISGORGEMENT AND PREJUDGMENT INTEREST AND ANAPPROPRIATE UNDERTAKING.










Resolution:


Sanction Details: **9/2004**EXCHANGE HEARING PANEL DECISION 04-154 DECISION:VIOLATED EXCHANGE RULE 342 BY FAILING TO REASONABLY SUPERVISEITS BUSINESS ACTIVITIES, AND TO ESTABLISH AND MAINTAINAPPROPRIATE PROCEDURES FOR SUPERVISION AND CONTROL WITHRESPECT TO ITS BUSINESS ACTIVITIES INVOLVING THE TRADING OFMUTUAL FUNDS; VIOLATED SECTION 17(A) OF THE EXCHANGE ACT, SECRULES 17A-3 & 17A-4 AND EXCHANGE RULE 440 IN THAT IT FAILED TOMAKE AND PRESERVE ACCURATE BOOKS AND RECORDS REFLECTINGORDERS FOR MUTUAL FUND TRANSACTIONS BY ITS HEDGE FUNDCUSTOMERS; VIOLATED SECTION 17(A)OF THE EXCHANGE ACT AND SECRULE 17A-4 AND EXCHANGE RULE 440 BY FAILING TO PRESERVE FOR APERIOD OF THREE YEARS AND/OR PRESERVE IN AN EASILY ACCESSIBLEPLACE FOR TWO YEARS, RECORDS OF ELECTRONIC COMMUNICATIONSRELATING TO THE BUSINESS OF THE FIRM; ENGAGED IN CONDUCTINCONSISTENT WITH JUST AND EQUITABLE PRINCIPLES OF TRADE INTHAT THE FIRM, THROUGH CERTAIN OF ITS BROKERS WITH RESPECT TOCERTAIN MUTUAL FUND TRANSACTIONS: (A) PURCHASED, SOLD ORREDEEMED SHARES OF MUTUAL FUNDS AT A PRICE WHICH WAS NOTBASED ON THE CURRENT NET ASSET VALUE OF SUCH SECURITY NEXTCOMPUTED AFTER RECEIPT OF A TENDER OF SUCH SECURITY FORREDEMPTION OR OF AN ORDER TO PURCHASE OR SELL SUCH SECURITY,IN VIOLATION OF APPLICABLE REGULATOR REQUIREMENTS OF RULE22(C)1 PROMULGATED UNDER THE INVESTMENT COMPANY ACT OF 1940;AND (B) IMPROPERLY PURCHASED, SOLD OR REDEEMED SHARES OFMUTUAL FUNDS AFTER THE CLOSE OF THE MARKET, AT THE SHARE PRICEPRIOR TO CLOSE, RATHER THAN AT THE NEXT DAYS SHARE PRICE, TOTHE DETRIMENT OF THE MUTUAL FUND COMPANIES AND THEIRSHAREHOLDERS. CONSENT TO CENSURE, A TOTAL PAYMENT OF$10,000,000 AND AN UNDERTAKING. THIS DECISION IS FINAL.

Firm Statement 1/14/05 - THE DECISION IS NOW FINAL AND EFFECTIVE IMMEDIATELY.

Sanctions Ordered: CensureMonetary/Fine $10,000,000.00Disgorgement/RestitutionCease and Desist/Injunction

Decision






Disclosure 33 of 53

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Injunction


CIVIL PENALTIES, DISGORGEMENT





Allegations: SEC LITIGATION RELEASE NO. 34-51002, IA 40-2341, IA 40-26721 DATEDJANUARY 10, 2005; THE SECURITIES AND EXCHANGE COMMISSION("COMMISSION" OR "SEC") DEEMS IT APPROPRIATE AND IN THE PUBLICINTEREST THAT PUBLIC ADMINISTRATIVE PROCEEDINGS BE, AND HEREBYARE, INSTITUTED AGAINST SOUTHWEST SECURITIES, INC.("SOUTHWEST," "THE FIRM" OR "RESPONDENT"), PURSUANT TO SECTIONS15(B) OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT"),AND THAT CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE,INSTITUTED PURSUANT TO SECTION 21C OF THE EXCHANGE ACT ANDSECTION 9(F) OF THE INVESTMENT COMPANY ACT OF 1940 ("INVESTMENTCOMPANY ACT") AGAINST SOUTHWEST. SOUTHWEST WILLFULLYVIOLATED SECTION 17(A)(1) OF THE EXCHANGE ACT AND RULES 17A-3AND 17A-4 THEREUNDER AND SOUTHWEST WILLFULLY VIOLATED RULE22C-1 UNDER THE INVESTMENT COMPANY ACT.



Resolution:


No


Order







Sanction Details: IT IS ORDERED RESPONDENT ARE HEREBY CENSURED AND SOUTHWESTSHALL PAY DISGORGEMENT AND PREJUDGMENT INTEREST IN THE TOTALAMOUNT OF $2,000,000 AND A CIVIL MONEY PENALTY IN THE AMOUNT OF$8,000,000, FOR A TOTAL PAYMENT OF $10,000,000. SOUTHWEST SHALLCEASE AND DESIST FROM COMMITTING OR CAUSING VIOLATIONS ORFUTURE VIOLATIONS OF SECTION 17(A)(1) OF THE EXCHANGE ACT ANDRULES 17A-3 AND 17A-4 THEREUNDER, AND OF RULE 22C-1 UNDER THEINVESTMENT COMPANY ACT. RESPONDENT HAS UNDERTAKEN TOCOOPERATE WITH THE STAFF OF THE COMMISSION IN ANY LITIGATION ORONGOING INVESTIGATION IN THIS MATTER AND RELATED MATTERS;SOUTHWEST HAS UNDERTAKEN TO BEAR ITS PRORATA SHARE OF THEREASONABLE COST OF COMPENSATION AND EXPENSES OF ANINDEPENDENT DISTRIBUTION CONSULTANT, WHO WILL BE NAMED BYORDER OF THE COMMISSION, AND WHO WILL BE RESPONSIBLE FOR ANYDISTRIBUTION OF ANY FAIR FUND ESTABLISHED PURSUANT TO THISORDER AND SECTION 308(A) OF THE SARBANES-OXLEY ACT OF 2002; ANDSOUTHWEST HAS UNDERTAKEN TO RETAIN AN INDEPENDENTCONSULTANT AS FOLLOWS: SOUTHWEST SHALL RETAIN, WITHIN 30 DAYSOF THE DATE OF THIS ORDER, AT ITS EXPENSE, AN INDEPENDENTCONSULTANT NOT UNACCEPTABLE TO THE COMMISSION'S STAFF, TOCONDUCT A REVIEW OF SOUTHWEST'S SUPERVISORY, COMPLIANCE, ANDOTHER POLICIES AND PROCEDURES DESIGNED TO DETECT ANDPREVENT VIOLATIONS OF THE FEDERAL SECURITIES LAWS RELATED TOMUTUAL FUND LATE TRADING, MUTUAL FUND MARKET TIMING, ANDMAKING, KEEPING AND PRESERVING REQUIRED BOOKS AND RECORDS.SOUTHWEST SHALL COOPERATE FULLY WITH THE INDEPENDENTCONSULTANT AND SHALL PROVIDE THE INDEPENDENT CONSULTANT WITHACCESS TO ITS FILES, BOOKS, RECORDS, AND PERSONNEL ASREASONABLY REQUESTED FOR THE REVIEW; SOUTHWEST SHALLREQUIRE THAT, AT THE CONCLUSION OF THAT REVIEW, WHICH IN NOEVENT WILL BE MORE THAN 150 DAYS AFTER THE DATE OF THEINDEPENDENT CONSULTANT'S RETENTION, THE INDEPENDENTCONSULTANT WILL SUBMIT TO SOUTHWEST AND TO THE COMMISSION ANINITIAL REPORT.

Regulator Statement IN ANTICIPATION OF THE INSTITUTION OF THESE PROCEEDINGS,RESPONDENT HAS SUBMITTED OFFERS OF SETTLEMENT (THE "OFFERS"),WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. THECOMMISSION FINDS THAT SOUTHWEST AND THREE OF ITS SUPERVISORSFAILED REASONABLY TO SUPERVISE THREE REGISTEREDREPRESENTATIVES WITH A VIEW TO PREVENTING THEIR VIOLATIONS OFTHE FEDERAL SECURITIES LAWS. TWO REGISTERED REPRESENTATIVESAT A SOUTHWEST BRANCH OFFICE ENGAGED IN AN ILLEGAL MARKETTIMING SCHEME, AND A THIRD ENGAGED BOTH IN A MARKET TIMINGSCHEME AND IN LATE TRADING, ON BEHALF OF TWO OF SOUTHWEST'SHEDGE FUND ADVISER CUSTOMERS. THE THREE REGISTEREDREPRESENTATIVES DEFRAUDED HUNDREDS OF MUTUAL FUNDS ANDTHEIR SHAREHOLDERS BY ENGAGING IN A SERIES OF SURREPTITIOUS "MASKING" ACTIVITIES, DESIGNED TO CIRCUMVENT RESTRICTIONS THATTHE MUTUAL FUNDS IMPOSED ON MARKET TIMING. A BROKER ALSODEFRAUDED MANY OF THE SAME MUTUAL FUNDS AND THEIRSHAREHOLDERS BY SYSTEMATICALLY LATE TRADING THE MUTUALFUNDS' SHARES. THROUGH THESE ACTIVITIES, THE BROKERS VIOLATEDTHE ANTIFRAUD PROVISIONS OF THE FEDERAL SECURITIES LAWS.SOUTHWEST REASONABLY TO SUPERVISE A BROKER WITH A VIEW TOPREVENTING HIS FRAUDULENT LATE TRADING SCHEME, IN THATSOUTHWEST HAD NO POLICIES OR PROCEDURES TO DETECT ANDPREVENT LATE TRADING (I.E., POLICIES AND PROCEDURES TO MONITORMUTUAL FUND TRADING BY ITS REGISTERED REPRESENTATIVES TOENSURE THAT SHARES PURCHASED OR SOLD AFTER THE CLOSE OF THEU.S. EQUITY MARKETS RECEIVED A PRICE BASED ON THE NEXT DAY'SNAV). THE COMMISSION DEEMS IT APPROPRIATE AND IN THE PUBLICINTEREST TO IMPOSE THE SANCTIONS TO WHICH THE RESPONDENTAGREED IN THE OFFERS.

CensureMonetary/Fine $8,000,000.00Disgorgement/RestitutionCease and Desist/Injunction






IN ANTICIPATION OF THE INSTITUTION OF THESE PROCEEDINGS,RESPONDENT HAS SUBMITTED OFFERS OF SETTLEMENT (THE "OFFERS"),WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. THECOMMISSION FINDS THAT SOUTHWEST AND THREE OF ITS SUPERVISORSFAILED REASONABLY TO SUPERVISE THREE REGISTEREDREPRESENTATIVES WITH A VIEW TO PREVENTING THEIR VIOLATIONS OFTHE FEDERAL SECURITIES LAWS. TWO REGISTERED REPRESENTATIVESAT A SOUTHWEST BRANCH OFFICE ENGAGED IN AN ILLEGAL MARKETTIMING SCHEME, AND A THIRD ENGAGED BOTH IN A MARKET TIMINGSCHEME AND IN LATE TRADING, ON BEHALF OF TWO OF SOUTHWEST'SHEDGE FUND ADVISER CUSTOMERS. THE THREE REGISTEREDREPRESENTATIVES DEFRAUDED HUNDREDS OF MUTUAL FUNDS ANDTHEIR SHAREHOLDERS BY ENGAGING IN A SERIES OF SURREPTITIOUS "MASKING" ACTIVITIES, DESIGNED TO CIRCUMVENT RESTRICTIONS THATTHE MUTUAL FUNDS IMPOSED ON MARKET TIMING. A BROKER ALSODEFRAUDED MANY OF THE SAME MUTUAL FUNDS AND THEIRSHAREHOLDERS BY SYSTEMATICALLY LATE TRADING THE MUTUALFUNDS' SHARES. THROUGH THESE ACTIVITIES, THE BROKERS VIOLATEDTHE ANTIFRAUD PROVISIONS OF THE FEDERAL SECURITIES LAWS.SOUTHWEST REASONABLY TO SUPERVISE A BROKER WITH A VIEW TOPREVENTING HIS FRAUDULENT LATE TRADING SCHEME, IN THATSOUTHWEST HAD NO POLICIES OR PROCEDURES TO DETECT ANDPREVENT LATE TRADING (I.E., POLICIES AND PROCEDURES TO MONITORMUTUAL FUND TRADING BY ITS REGISTERED REPRESENTATIVES TOENSURE THAT SHARES PURCHASED OR SOLD AFTER THE CLOSE OF THEU.S. EQUITY MARKETS RECEIVED A PRICE BASED ON THE NEXT DAY'SNAV). THE COMMISSION DEEMS IT APPROPRIATE AND IN THE PUBLICINTEREST TO IMPOSE THE SANCTIONS TO WHICH THE RESPONDENTAGREED IN THE OFFERS.


Initiated By: SEC


Allegations: IN ORDER TO COMPLY WITH CERTAIN REQUIREMENTS STATED BY STAFFOF THE SEC, SOLICITOR HEREBY MAKES THE FOLLOWIN DISCLOSURE:EFFECTIVE ON 1/06/2005, SOLICITOR ENTERED INTO AN OFFER OFSETTLEMENT WITH THE SEC PURSUANT TO WHICH SOLICITOR SETTLEDADMINISTRATIVE PROCEEDINGS BROUGHT BY THE SEC. IN THATSETTLEMENT,AND WITHOUT ADMITTING OR DENYING THE FINDINGSCONTAINED IN THE SEC'S ORDER INSTITUTING ADMINISTRATIVEPROCEEDINGS, SOLICITOR CONSENTED TO SEC FINDINGS THATSOLICITOR FAILED REASONABLY TO SUPERVISE THREE FORMERBROKERS ENGAGED IN LATE TRADING AND MARKET TIMING OF MUTUALFUNDS, THAT SOLICITOR ALLOWED MUTUAL FUND TRADES RECEIVEDAFTER 4:00 P.M. TO BE PROCESSED AT THAT DAY'S PRICE AND THAT THESOLICITOR FAILED TO MAINTAIN AND PRESERVE CERTAIN BOOKS ANDRECORDS. SOLICITOR AGREED TO A CENSURE, DISGORGEMENT OF$2,000,000. AND A CIVIL MONEY PENALYT OF $8,000,000.










CEASE AND DESIST, CENSURE, DISGORGEMENT, UNDERTAKING

Docket/Case Number: ADMIN. PROC. FILE NO. 3-11793




Resolution:


Sanction Details: CEASE AND DESIST, CENSURE, DISGORGEMENT & MONETARY FINE.

Firm Statement IN ORDER TO COMPLY WITH CERTAIN REQUIREMENTS STATED BY STAFFOF THE SEC, SOLICITOR HEREBY MAKES THE FOLLOWING DISCLOSURE:EFFECTIVE ON 1/06/2005, SOLICITOR ENTERED INTO AN OFFER OFSETTLEMENT WITH THE SEC PURSUANT TO WHICH SOLICITOR SETTLEDADMINISTRATIVE PROCEEDINGS BROUGHT BY THE SEC. IN THATSETTLEMENT, AND WITHOUT ADMITTING OR DENYING THE FINDINGSCONTAINED IN THE SEC'S ORDER INSTITUTING ADMINISTRATIVEPROCEEDINGS, SOLICITOR CONSENTED TO SEC FINDINGS THATSOLICITOR FAILED REASONABLY TO SUPERVISE THREE FORMERBROKERS ENGAGED IN LATE TRADING AND MARKET TIMING OF MUTUALFUNDS, THAT SOLICITOR ALLOWED MUTUAL FUND TRADES RECEIVEDAFTER 4:00 P.M. TO BE PROCESSED AT THAT DAY'S PRICE AND THAT THESOLICITOR FAILED TO MAINTAIN AND PRESERVE CERTAIN BOOKS ANDRECORDS. SOLICITOR AGREED TO A CENSURE, DISGORGEMENT OF$2,000,000. AND A CIVIL MONEY PENALTY OF $8,000,000.


Decision & Order of Offer of Settlement

Disclosure 34 of 53

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Allegations: NASD CONDUCT RULE 2110 - RESPONDENT MEMBER SOLD SHARESISSUED BY MUTUAL FUNDS WITHOUT PROVIDING CERTAIN CUSTOMERSWITH THE REDUCTION IN THE FRONT-END LOADS, OR SALES CHARGESDESCRIBED IN THE PROSPECTUSES OF THE FUNDS; FAILED TO GIVE ITSCUSTOMERS BREAKPOINT DISCOUNTS IN 89.02% OF ELIGIBLE MUTUALFUND TRANSACTIONS IN 2001 AND 2002, THAT RESULTED IN MISSEDBREAKPOINTS THAT WOULD HAVE REDUCED CUSTOMERS CHARGES BYAT LEAST $36,971 ON THEIR PURCHASES OF MUTUAL FUND SHARES WITHFRONT-END LOADS DURING THE RELEVANT PERIOD.







Initiated By: NASD




Docket/Case Number: CAF040016



NASD CONDUCT RULE 2110 - RESPONDENT MEMBER SOLD SHARESISSUED BY MUTUAL FUNDS WITHOUT PROVIDING CERTAIN CUSTOMERSWITH THE REDUCTION IN THE FRONT-END LOADS, OR SALES CHARGESDESCRIBED IN THE PROSPECTUSES OF THE FUNDS; FAILED TO GIVE ITSCUSTOMERS BREAKPOINT DISCOUNTS IN 89.02% OF ELIGIBLE MUTUALFUND TRANSACTIONS IN 2001 AND 2002, THAT RESULTED IN MISSEDBREAKPOINTS THAT WOULD HAVE REDUCED CUSTOMERS CHARGES BYAT LEAST $36,971 ON THEIR PURCHASES OF MUTUAL FUND SHARES WITHFRONT-END LOADS DURING THE RELEVANT PERIOD.


Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, SOUTHWESTSECURITIES, INC. CONSENTED TO THE FINDING OF THE ALLEGATIONSAND TO THE FOLLOWING SANCTIONS: CENSURED AND FINED $36,971, ANDREQUIRED TO PROVIDE WRITTEN NOTIFICATION TO EACH CUSTOMERWHO PURCHASED FRONT-END LOAD MUTUAL FUNDS THROUGH THE FIRMFROM JANUARY 1, 1999 THROUGH NOVEMBER 3, 2003 THAT THE FIRMEXPERIENCED A PROBLEM DELIVERING BREAKPOINT DISCOUNTS ANDTHAT AS A RESULT, THE CUSTOMER MAY BE ENTITLED TO A REFUND;PERFORM A TRADE-BY-TRADE ANALYSIS OF ALL FRONT-END LOADMUTUAL FUND PURCHASES OF $2,500 OR MORE AND ALL OVERCHARGESIDENTIFIED REFUNDED BY MARCH 31, 2004; PROVIDE REFUNDS TO ALLCUSTOMERS WHO DID NOT RECEIVE ALL APPLICABLE BREAKPOINTDISCOUNTS AS DESCRIBED IN NTM 03-47; PROVIDE NASD A REPORT ONRESPONDENT'S PROGRAM BY 4/16/04; AND NOT LATER THAN SIX MONTHSAFTER THE DATE OF THIS ORDER, RESPONDENT'S CHIEF EXECUTIVEOFFICER OR ANOTHER SENIOR EXEUCTIVE OFFICER SHALL CERTIFY INWRITING TO NASD THAT RESPONDENT HAS IMPLEMENTED PROCEDURESAND A SYSTEM FOR IDNETIFYING SUCH PROCEDURES THAT CANREASONABLY BE EXPECTED TO PREVENT AND DETECT FAILURES TOPROVIDE BREAKPOINT DISCOUNTS FOR WHICH CUSTOMERS AREELIGIBLE ON PURCHASES OF FRONT-END LOAD MUTUAL FUNDS.


No








WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, SOUTHWESTSECURITIES, INC. CONSENTED TO THE FINDING OF THE ALLEGATIONSAND TO THE FOLLOWING SANCTIONS: CENSURED AND FINED $36,971, ANDREQUIRED TO PROVIDE WRITTEN NOTIFICATION TO EACH CUSTOMERWHO PURCHASED FRONT-END LOAD MUTUAL FUNDS THROUGH THE FIRMFROM JANUARY 1, 1999 THROUGH NOVEMBER 3, 2003 THAT THE FIRMEXPERIENCED A PROBLEM DELIVERING BREAKPOINT DISCOUNTS ANDTHAT AS A RESULT, THE CUSTOMER MAY BE ENTITLED TO A REFUND;PERFORM A TRADE-BY-TRADE ANALYSIS OF ALL FRONT-END LOADMUTUAL FUND PURCHASES OF $2,500 OR MORE AND ALL OVERCHARGESIDENTIFIED REFUNDED BY MARCH 31, 2004; PROVIDE REFUNDS TO ALLCUSTOMERS WHO DID NOT RECEIVE ALL APPLICABLE BREAKPOINTDISCOUNTS AS DESCRIBED IN NTM 03-47; PROVIDE NASD A REPORT ONRESPONDENT'S PROGRAM BY 4/16/04; AND NOT LATER THAN SIX MONTHSAFTER THE DATE OF THIS ORDER, RESPONDENT'S CHIEF EXECUTIVEOFFICER OR ANOTHER SENIOR EXEUCTIVE OFFICER SHALL CERTIFY INWRITING TO NASD THAT RESPONDENT HAS IMPLEMENTED PROCEDURESAND A SYSTEM FOR IDNETIFYING SUCH PROCEDURES THAT CANREASONABLY BE EXPECTED TO PREVENT AND DETECT FAILURES TOPROVIDE BREAKPOINT DISCOUNTS FOR WHICH CUSTOMERS AREELIGIBLE ON PURCHASES OF FRONT-END LOAD MUTUAL FUNDS.


Initiated By: NASD




Docket/Case Number: CAF040016



Allegations: NASD CONDUCT RULE 2110 - RESPONDENT MEMBER SOLD SHARESISSUED BY MUTUAL FUNDS WITHOUT PROVIDING CERTAIN CUSTOMERSWITH THE REDUCTION IN THE FRONT-END LOADS, OR SALES CHARGESDESCRIBED IN THE PROSPECTUSES OF THE FUNDS; FAILED TO GIVE ITSCUSTOMERS BREAKPOINT DISCOUNTS IN 89.02% OF ELIGIBLE MUTUALFUND TRANSACTIONS IN 2001 AND 2002, THAT RESULTED IN MISSEDBREAKPOINTS THAT WOULD HAVE REDUCED CUSTOMERS CHARGES BYAT LEAST $36,971 ON THEIR PURCHASES OF MUTUAL FUND SHARES WITHFRONT-END LOADS DURING THE RELEVANT PERIOD.



Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, SOUTHWESTSECURITIES, INC. CONSENTED TO THE FINDING OF THE ALLEGATIONSAND TO THE FOLLOWING SANCTIONS: CENSURED AND FINED $36,971, ANDREQUIRED TO PROVIDE WRITTEN NOTIFICATION TO EACH CUSTOMERWHO PURCHASED FRONT-END LOAD MUTUAL FUNDS THROUGH THE FIRMFROM JANUARY 1, 1999 THROUGH NOVEMBER 3, 2003 THAT THE FIRMEXPERIENCED A PROBLEM DELIVERING BREAKPOINT DISCOUNTS ANDTHAT AS A RESULT, THE CUSTOMER MAY BE ENTITLED TO A REFUND;PERFORM A TRADE-BY-TRADE ANALYSIS OF ALL FRONT-END LOADMUTUAL FUND PURCHASES OF $2,500 OR MORE AND ALL OVERCHARGESIDENTIFIED REFUNDED BY MARCH 31, 2004; PROVIDE REFUNDS TO ALLCUSTOMERS WHO DID NOT RECEIVE ALL APPLICABLE BREAKPOINTDISCOUNTS AS DESCRIBED IN NTM 03-47; PROVIDE NASD A REPORT ONRESPONDENT'S PROGRAM BY 4/16/04; AND NOT LATER THAN SIX MONTHSAFTER THE DATE OF THIS ORDER, RESPONDENT'S CHIEF EXECUTIVEOFFICER OR ANOTHER SENIOR EXECUTIVE OFFICER SHALL CERTIFY INWRITING TO NASD THAT RESPONDENT HAS IMPLEMENTED PROCEDURESAND A SYSTEM FOR IDENTIFYING SUCH PROCEDURES THAT CANREASONABLY BE EXPECTED TO PREVENT AND DETECT FAILURES TOPROVIDE BREAKPOINT DISCOUNTS FOR WHICH CUSTOMERS AREELIGIBLE ON PURCHASES OF FRONT-END LOAD MUTUAL FUNDS.








Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, SOUTHWESTSECURITIES, INC. CONSENTED TO THE FINDING OF THE ALLEGATIONSAND TO THE FOLLOWING SANCTIONS: CENSURED AND FINED $36,971, ANDREQUIRED TO PROVIDE WRITTEN NOTIFICATION TO EACH CUSTOMERWHO PURCHASED FRONT-END LOAD MUTUAL FUNDS THROUGH THE FIRMFROM JANUARY 1, 1999 THROUGH NOVEMBER 3, 2003 THAT THE FIRMEXPERIENCED A PROBLEM DELIVERING BREAKPOINT DISCOUNTS ANDTHAT AS A RESULT, THE CUSTOMER MAY BE ENTITLED TO A REFUND;PERFORM A TRADE-BY-TRADE ANALYSIS OF ALL FRONT-END LOADMUTUAL FUND PURCHASES OF $2,500 OR MORE AND ALL OVERCHARGESIDENTIFIED REFUNDED BY MARCH 31, 2004; PROVIDE REFUNDS TO ALLCUSTOMERS WHO DID NOT RECEIVE ALL APPLICABLE BREAKPOINTDISCOUNTS AS DESCRIBED IN NTM 03-47; PROVIDE NASD A REPORT ONRESPONDENT'S PROGRAM BY 4/16/04; AND NOT LATER THAN SIX MONTHSAFTER THE DATE OF THIS ORDER, RESPONDENT'S CHIEF EXECUTIVEOFFICER OR ANOTHER SENIOR EXECUTIVE OFFICER SHALL CERTIFY INWRITING TO NASD THAT RESPONDENT HAS IMPLEMENTED PROCEDURESAND A SYSTEM FOR IDENTIFYING SUCH PROCEDURES THAT CANREASONABLY BE EXPECTED TO PREVENT AND DETECT FAILURES TOPROVIDE BREAKPOINT DISCOUNTS FOR WHICH CUSTOMERS AREELIGIBLE ON PURCHASES OF FRONT-END LOAD MUTUAL FUNDS.

Firm Statement WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, SOUTHWESTSECURITIES, INC. CONSENTED TO THE FINDING OF THE ALLEGATIONSAND TO THE FOLLOWING SANCTIONS: CENSURED AND FINED $36,971, ANDREQUIRED TO PROVIDE WRITTEN NOTIFICATION TO EACH CUSTOMERWHO PURCHASED FRONT-END LOAD MUTUAL FUNDS THROUGH THE FIRMFROM JANUARY 1, 1999 THROUGH NOVEMBER 3, 2003 THAT THE FIRMEXPERIENCED A PROBLEM DELIVERING BREAKPOINT DISCOUNTS ANDTHAT AS A RESULT, THE CUSTOMER MAY BE ENTITLED TO A REFUND;PERFORM A TRADE-BY-TRADE ANALYSIS OF ALL FRONT-END LOADMUTUAL FUND PURCHASES OF $2,500 OR MORE AND ALL OVERCHARGESIDENTIFIED REFUNDED BY MARCH 31, 2004; PROVIDE REFUNDS TO ALLCUSTOMERS WHO DID NOT RECEIVE ALL APPLICABLE BREAKPOINTDISCOUNTS AS DESCRIBED IN NTM 03-47; PROVIDE NASD A REPORT ONRESPONDENT'S PROGRAM BY 4/16/04; AND NOT LATER THAN SIX MONTHSAFTER THE DATE OF THIS ORDER, RESPONDENT'S CHIEF EXECUTIVEOFFICER OR ANOTHER SENIOR EXECUTIVE OFFICER SHALL CERTIFY INWRITING TO NASD THAT RESPONDENT HAS IMPLEMENTED PROCEDURESAND A SYSTEM FOR IDENTIFYING SUCH PROCEDURES THAT CANREASONABLY BE EXPECTED TO PREVENT AND DETECT FAILURES TOPROVIDE BREAKPOINT DISCOUNTS FOR WHICH CUSTOMERS AREELIGIBLE ON PURCHASES OF FRONT-END LOAD MUTUAL FUNDS.

Disclosure 35 of 53

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Initiated By: NASD




Docket/Case Number: CMS030287


Other Product Type(s): UNKNOWN TYPE OF SECURITIES

Allegations: NASD CONDUCT RULE 2110, NASD MARKETPLACE RULES 6230 AND6230(C)(8) - RESPONDENT MEMBER ("FIRM") FAILED TO REPORT TO TRADEREPORTING AND COMPLIANCE ENGINE (TRACE) TRANSACTIONS INTRACE-ELIGIBLE SECURITIES WITHIN 75 MINUTES AFTER EXECUTION. INADDITION, THE FIRM FAILED TO REPORT TO TRACE THE CORRECTEXECUTION TIME IN TRANSACTIONS IN TRACE-ELIGIBLE SECURITIES.FURTHERMORE, THE FIRM DOUBLE REPORTED TO TRACE TRANSACTIONSIN TRACE-ELIGIBLE SECURITIES.



Resolution:




No









Initiated By: NASD


Censure


FINE OF $10,000.00




Other Product Type(s): CORPORATE BONDS

Allegations: RESPONDENT FAILED TO REPORT TO TRACE IN A TIMELY MANNER,RESPONDENT FAILED TO REPORT TO TRACE THE CORRECT EXECUTIONTIMES, AND RESPONDENT DOUBLE REPORTED TO TRACE DURING THEPERIOD OF AUGUST 1,2002 THROUGH SEPTEMBER 30, 2002.



Resolution:


Sanction Details: A CENSURE AND FINE OF $10000.00

Firm Statement RESPONDENT FAILED TO REPORT TO TRACE IN A TIMELY MANNER,RESPONDENT FAILED TO REPORT TO TRACE THE CORRECT EXECUTIONTIMES AND RESPONDENT DOUBLE REPORTED TO TRACE DURING THEPERIOD OF AUGUST 1, 2002 THROUGH SEPTEMBER 30, 2002.



Disclosure 36 of 53

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Allegations: **7/11/03**STIPULATION AND CONSENT TO PENALTY FILED BY NYSEDIVISION OF ENFORCEMENT AND PENDING.CONSENTED TOFINDINGS:WITHOUT ADMITTING OR DENYING GUILT, SOUTHWESTSECURITIES CONSENTS TO FINDINGS BY THE HEARING PANEL THAT THEFIRM:1.VIOLATED EXCHANGE RULE 342 BY FAILING TO ESTABLISH ANDMAINTAIN APPROPRIATE PROCEDURES FOR SUPERVISION AND CONTROLWITH RESPECT TO:A.MAKING AND PRESERVING ACCURATE BOOKS ANDRECORDS DURING A SYSTEM CONVERSION; B.FLOOR BROKERAGEACTIVITIES; AND C.COMPLIANCE WITH CONTINUING EDUCATIONREQUIREMENTS;2.VIOLATED SEC RULES 17A-3 AND 17A-4 AND EXCHANGERULE 440 IN THAT, DURING A SYSTEM CONVERSION, THE FIRM FAILED TOMAKE AND PRESERVE ACCURATE BOOKS AND RECORDS CONCERNINGCUSTOMER ACCOUNTS AND CLEARANCE ACCOUNTRECONCILIATIONS.3.VIOLATED SEC RULE 15C3-1 BY FAILING TOPROPERLY COMPUTE ITS NET CAPITAL IN THAT THE FIRM FAILED TO MAKENET CAPITAL ADJUSTMENTS FOR CERTAIN AGED SECURITY POSITIONSAND RELATED MONEY BALANCES.4.VIOLATED EXCHANGE RULES 123 AND 410 BY FAILING TO PREPARE ANDPRESERVE RECORDS OF ITS FLOOR BROKERAGE ORDERS.5.VIOLATED EXCHANGE RULE 345A BY ALLOWING ONE OR MOREINDIVIDUALS TO PERFORM DUTIES AS REGISTERED PERSONS AFTERFAILING TO COMPLY WITH CONTINUING EDUCATION REQUIREMENTS.STIPULATED SANCTION:WITHOUT ADMITTING OR DENYING GUILT,SOUTHWEST SECURITIES CONSENTS TO THE IMPOSITION BY THEEXCHANGE OF THE PENALTY OF A CENSURE AND A FINE OF $150,000.














**7/11/03**STIPULATION AND CONSENT TO PENALTY FILED BY NYSEDIVISION OF ENFORCEMENT AND PENDING.CONSENTED TOFINDINGS:WITHOUT ADMITTING OR DENYING GUILT, SOUTHWESTSECURITIES CONSENTS TO FINDINGS BY THE HEARING PANEL THAT THEFIRM:1.VIOLATED EXCHANGE RULE 342 BY FAILING TO ESTABLISH ANDMAINTAIN APPROPRIATE PROCEDURES FOR SUPERVISION AND CONTROLWITH RESPECT TO:A.MAKING AND PRESERVING ACCURATE BOOKS ANDRECORDS DURING A SYSTEM CONVERSION; B.FLOOR BROKERAGEACTIVITIES; AND C.COMPLIANCE WITH CONTINUING EDUCATIONREQUIREMENTS;2.VIOLATED SEC RULES 17A-3 AND 17A-4 AND EXCHANGERULE 440 IN THAT, DURING A SYSTEM CONVERSION, THE FIRM FAILED TOMAKE AND PRESERVE ACCURATE BOOKS AND RECORDS CONCERNINGCUSTOMER ACCOUNTS AND CLEARANCE ACCOUNTRECONCILIATIONS.3.VIOLATED SEC RULE 15C3-1 BY FAILING TOPROPERLY COMPUTE ITS NET CAPITAL IN THAT THE FIRM FAILED TO MAKENET CAPITAL ADJUSTMENTS FOR CERTAIN AGED SECURITY POSITIONSAND RELATED MONEY BALANCES.4.VIOLATED EXCHANGE RULES 123 AND 410 BY FAILING TO PREPARE ANDPRESERVE RECORDS OF ITS FLOOR BROKERAGE ORDERS.5.VIOLATED EXCHANGE RULE 345A BY ALLOWING ONE OR MOREINDIVIDUALS TO PERFORM DUTIES AS REGISTERED PERSONS AFTERFAILING TO COMPLY WITH CONTINUING EDUCATION REQUIREMENTS.STIPULATED SANCTION:WITHOUT ADMITTING OR DENYING GUILT,SOUTHWEST SECURITIES CONSENTS TO THE IMPOSITION BY THEEXCHANGE OF THE PENALTY OF A CENSURE AND A FINE OF $150,000.


Resolution:


Sanction Details: **09/8/03**EXCHANGE HEARING PANEL DECISION 03-169DECISION:VIOLATED EXCHANGE RULE 342 BY FAILING TO MAINTAINAPPROPRIATE PROCEDURES FOR SUPERVISION WITH RESPECT TOMAKING AND PRESERVING ACCURATE BOOKS AND RECORDS DURING ASYSTEM CONVERSION, FLOOR BROKERAGE ACTIVITIES AND COMPLIANCEWITH CONTINUING EDUCATION REQUIREMENTS; VIOLATED SEC RULES17A-3 AND 17A-4 AND EXCHANGE RULE 440 BY FAILING TO PRESERVEACCURATE BOOKS AND RECORDS CONCERNING CUSTOMER ACCOUNTSAND CLEARANCE ACCOUNT RECONCILIATIONS DURING A SYSTEMSCONVERSION; VIOLATED SEC RULE 15C3-1 BY FAILING TO PROPERLYCOMPUTE NET CAPITAL; VIOLATED EXCHANGE RULES 123 AND 410 BYFAILING TO PRESERVE RECORDS OF FLOOR BROKERAGE ORDERS;VIOLATED EXCHANGE RULE 345A CONCERNING CONTINUING EDUCATIONREQUIREMENTS - CONSENTED TO CENSURE AND $150,000 FINE.


Decision






**09/8/03**EXCHANGE HEARING PANEL DECISION 03-169DECISION:VIOLATED EXCHANGE RULE 342 BY FAILING TO MAINTAINAPPROPRIATE PROCEDURES FOR SUPERVISION WITH RESPECT TOMAKING AND PRESERVING ACCURATE BOOKS AND RECORDS DURING ASYSTEM CONVERSION, FLOOR BROKERAGE ACTIVITIES AND COMPLIANCEWITH CONTINUING EDUCATION REQUIREMENTS; VIOLATED SEC RULES17A-3 AND 17A-4 AND EXCHANGE RULE 440 BY FAILING TO PRESERVEACCURATE BOOKS AND RECORDS CONCERNING CUSTOMER ACCOUNTSAND CLEARANCE ACCOUNT RECONCILIATIONS DURING A SYSTEMSCONVERSION; VIOLATED SEC RULE 15C3-1 BY FAILING TO PROPERLYCOMPUTE NET CAPITAL; VIOLATED EXCHANGE RULES 123 AND 410 BYFAILING TO PRESERVE RECORDS OF FLOOR BROKERAGE ORDERS;VIOLATED EXCHANGE RULE 345A CONCERNING CONTINUING EDUCATIONREQUIREMENTS - CONSENTED TO CENSURE AND $150,000 FINE.

Regulator Statement **10/10/03**THE DECISION IS NOW FINAL AND EFFECTIVEIMMEDIATELY.CONTACT: EVELYN PENA 212-656-5211.


Initiated By: NYSE


Censure


$150,000.00 FINE


Docket/Case Number: DECISION 03-169



Allegations: VIOLATED EXCHANGE RULE 342 BY FAILING TO MAINTAIN APPROPRIATEPROCEDURES FOR SUPERVISION WITH RESPECT TO MAKING ANDPRESERVING ACCURATE RECORDS DURING A SYSTEM CONVERSION,FLOOR BROKERAGE ACTIVITIES, AND COMPLIANCE WITH CONTINUINGEDUCATION REQUIREMENTS; VIOLATED SEC RULES 17A-3 & 17A-4 ANDEXCHANGE RULE 440 BY FAILING TO PRESERVE ACCURATE BOOKS ANDRECORDS CONCERNING CUSTOMER ACCOUNTS AND CLEARANCEACCOUNT RECONCILIATIONS DURING A SYSTEM CONVERSION; VIOLATEDSEC RULE 15C3-1 BY FAILING TO PROPERLY COMPUTE NET CAPITAL;VIOLATED EXCHANGE RULES 123 AND 410 BY FAILING TO PRESERVERECORDS OF FLOOR BROKERAGE ORDERS; VIOLATED EXCHANGE RULE345A CONCERNING CONTINUING EDUCATION REQUIREMENTS.



Resolution:


Settled







Sanction Details: CENSURE & $150,000 FINE.

Firm Statement VIOLATED EXCHANGE RULE 342 BY FAILING TO MAINTAIN APPROPRIATEPROCEDURES FOR SUPERVISION WITH RESPECT TO MAKING ANDPRESERVING ACCURATE RECORDS DURING A SYSTEM CONVERSION,FLOOR BROKERAGE ACTIVITIES, AND COMPLIANCE WITH CONTINUINGEDUCATION REQUIREMENTS; VIOLATED SEC RULES 17A-3 AND 17A-4 ANDEXCHANGE RULE 440 BY FAILING TO PRESERVE ACCURATE BOOKS ANDRECORDS CONCERNING CUSTOMER ACCOUNTS AND CLEARANCEACCOUNT RECONCILIATIONS DURING A SYSTEM CONVERSION; VIOLATEDSEC RULE 15C3-1 BY FAILING TO PROPERLY COMPUTE NET CAPITAL;VIOLATED EXCHANGE RULES 123 & 410 BY FAILING TO PRESERVERECORDS OF FLOOR BROKERAGE ORDERS; VIOLATED EXCHANGE RULE345A CONCERNING CONTINUING EDUCATION REQUIREMENTS - CONSENTTO CENSURE & $150,000 FINE.


Disclosure 37 of 53

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Initiated By: NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.







Allegations: NASD CONDUCT RULES 2110 AND 2320 - RESPONDENT MEMBER FAILED, INTRANSACTIONS FOR OR WITH A CUSTOMER, TO USE REASONABLEDILIGENCE TO ASCERTAIN THE BEST INTER-DEALER MARKET AND FAILEDTO BUY OR SELL IN SUCH MARKET SO THAT THE RESULTANT PRICE TO ITSCUSTOMER WAS AS FAVORABLE AS POSSIBLE UNDER PREVAILINGMARKET CONDITIONS.











Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, RESPONDENTMEMBER CONSENTED TO THE DESCRIBED SANCTIONS AND TO THEENTRY OF FINDINGS; THEREFORE, THE FIRM IS CENSURED, FINED$10,000, AND RESTITUTION IN THE TOTAL AMOUNT OF $356.95, PLUSINTEREST. SATISFACTORY PROOF OF PAYMENT OF THE RESTITUTION OROF REASONABLE AND DOCUMENTED EFFORTS UNDERTAKEN TO EFFECTRESTITUTION SHALL BE PROVIDED TO NASD NO LATER THAN 120 DAYSAFTER ACCEPTANCE OF THIS AWC. IF FOR ANY REASON RESPONDENTCANNOT LOCATE ANY CUSTOMER AFTER REASONABLE ANDDOCUMENTED EFFORTS WITHIN SUCH PERIOD, OR SUCH ADDITIONALPERIOD AGREED TO NASD, RESPONDENT SHALL FORWARD ANYUNDISTRIBUTED RESTITUTION AND INTEREST TO THE APPROPRIATEESCHEAT, UNCLAIMED PROPERTY, OR ABANDONED PROPERTY FUND FORONE OF THE STATES IN WHICH THE CUSTOMER LAST RESIDED.










Allegations: NASD CONDUCT RULES 2110 AND 2320 - RESPONDENT MEMBER FAILED, INTRANSACTIONS FOR OR WITH A CUSTOMER, TO USE REASONABLEDILIGENCE TO ASCERTAIN THE BEST INTER-DEALER MARKET AND FAILEDTO BUY OR SELL IN SUCH MARKET SO THAT THE RESULTANT PRICE TO ITSCUSTOMER WAS AS FAVORABLE AS POSSIBLE UNDER PREVAILINGMARKET CONDITIONS.


Resolution: Acceptance, Waiver & Consent(AWC) 119©2020 FINRA. All rights reserved. Report about HILLTOP SECURITIES INC.






Resolution:


Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS,RESPONDENTMEMBER CONSENTED TO THE DESCRIBED SANCTIONS AND TO THEENTRY OF FINDINGS;THEREFORE,THE FIRM IS CENSURED,FINED$10,000,AND RESTITUTION IN THE TOTAL AMOUNT OF $356.95, PLUSINTEREST. SATISFACTORY PROOF OF PAYMENT OF THE RESTITUTION OROF REASONABLE AND DOCUMENTED EFFORTS UNDERTAKEN TO EFFECTRESTITUTION SHALL BE PROVIDED TO NASD NO LATER THAN 120 DAYSAFTER ACCEPTANCE OF THIS AWC. IF FOR ANY REASON RESPONDENTCANNOT LOCATE ANY CUSTOMER AFTER REASONABLE ANDDOCUMENTED EFFORTS WITHIN SUCH PERIOD, OR SUCH ADDITIONALPERIOD AGREED TO NASD, RESPONDENT SHALL FORWARD ANYUNDISTRIBUTED RESTITUTION AND INTEREST TO THE APPROPRIATEESCHEAT, UNCLAIMED PROPERTY, OR ABANDONED PROPERTY FUND FORONE OF THE STATES IN WHICH THE CUSTOMER LAST RESIDED.



Disclosure 38 of 53

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Docket/Case Number: C05020047



Allegations: NASD RULES 2110 AND 3010(B) - WITHOUT ADMITTING OR DENYING THEALLEGATIONS, RESPONDENT MEMBER CONSENTED TO THE ENTRY OFFINDINGS THAT IT FAILED TO ENFORCE WRITTEN SUPERVISORYPROCEDURES ADDRESSING THE HANDLING, APPROVAL AND PROCESSINGOF CUSTOMER LETTERS OF AUTHORIZATION RECEIVED FROM ITSCORRESPONDENT FIRMS PARTICIPATING IN DAY TRADING ACTIVITIES;RESPONDENT FAILED TO REFLECT IN ITS WRITTEN SUPERVISORYPROCEDURES, ITS PROCEDURES TO ADDRESS THE SETTING OF TRADINGPARAMETERS FOR CORRESPONDENT FIRMS AND THE MONITORING OFCORRESPONDENT TRANSACTIONS AWAY FROM RESPONDENT.











Resolution:

Other Sanctions Ordered: UNDERTAKING: WITHIN 60 DAYS OF THE DATE OF THIS AWC, RESPONDENTMEMBER WILL MEET WITH THE ASSOCIATION TO REVIEW AND MAKERECOMMENDATIONS CONCERNING THE FIRM'S WRITTEN SUPERVISORYPROCEDURES AS THEY RELATE TO THE REVIEW OF APPROVAL OFLETTERS OF AUTHORIZATION AND THE FIRM'S CREDIT RESTRICTIONS ANDTRADING PARAMETERS.

Sanction Details: CENSURE AND $25,000 FINE.










Allegations: NASD RULES 2110 AND 3010(B) - WITHOUT ADMITTING OR DENYING THEALLEGATIONS, RESPONDENT MEMBER CONSENTED TO THE ENTRY OFFINDINGS THAT IT FAILED TO ENFORCE WRITTEN SUPERVISORYPROCEDURES ADDRESSING THE HANDLING, APPROVAL AND PROCESSINGOF CUSTOMER LETTERS OF AUTHORIZATION RECEIVED FROM ITSCORRESPONDENT FIRMS PARTICIPATING IN DAY TRADING ACTIVITIES;RESPONDENT FAILED TO REFLECT IN ITS WRITTEN SUPERVISORYPROCEDURES, ITS PROCEDURES TO ADDRESS THE SETTING OF TRADINGPARAMETERS FOR CORRESPONDENT FIRMS AND THE MONITORING OFCORRESPONDENT TRANSACTIONS AWAY FROM RESPONDENT.










Resolution:

Other Sanctions Ordered: UNDERTAKING: WITHIN 60 DAYS OF THE DATE OF THIS AWC, RESPONDENTMEMBER WILL MEET WITH THE ASSOCIATION TO REVIEW AND MAKERECOMMENDATIONS CONCERNING THE FIRM'S WRITTEN SUPERVISORYPROCEDURES AS THEY RELATE TO THE REVIEW OF APPROVAL OFLETTERS OF AUTHORIZATION AND THE FIRM'S CREDIT RESTRICTIONS ANDTRADING PARAMETERS.

Sanction Details: CENSURE AND $25,000 FINE.



Disclosure 39 of 53

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Other Product Type(s): UNKNOWN TYPE OF SECURITIES.

Allegations: NASD RULE 4613(E)(1)(C) - WITHOUT ADMITTING OR DENYING THEALLEGATIONS, THE RESPONDENT CONSENTED TO THE ENTRY OFFINDINGS THAT IT, A MARKET MAKER IN SECURITIES,LOCKED/CROSSED MARKET DURING THE PRE-OPENING MARKET PERIODAND FAILED TO IMMEDIATELY THEREAFTER SEND A TRADE-OR-MOVEMESSAGE THROUGH SELECTNET TO THE MARKET PARTICIPANT WHOSEQUOTE IT LOCKED OR CROSSED THAT WAS PRICED AT THE RECEIVINGMARKET PARTICIPANT'S QUOTED PRICE; AND/OR FAILED TO SEND ATRADE-OR-MOVE MESSAGE(S) THROUGH SELECTNET WITH ANAGGREGATE SIZE OF AT LEAST 5,000 SHARES TO ALL MARKETPARTICIPANTS WHOSE QUOTES IT LOCKED/CROSSED.










Resolution:


Sanction Details: A CENSURE AND A FINE OF $10,000.











Allegations: NASD RULE 4613(E)(1)(C) - WITHOUT ADMITTING OR DENYING THEALLEGATIONS, THE RESPONDENT CONSENTED TO THE ENTRY OFFINDINGS THAT IT, A MARKET MARKER IN SECURITIES, LOCKED/CROSSEDMARKET DURING THE PRE-OPENING MARKET PERIOD AND FAILED TOIMMEDIATELY THEREAFTER SEND A TRADE-OR-MOVE MESSAGETHROUGH SELECTNET TO THE MARKET PARTICIPANT WHOSE QUOTE ITLOCKED OR CROSSED THAT WAS PRICED AT THE RECEIVING MARKETPARTICIPANT'S QUOTED PRICE; AND/OR FAILED TO SEND A TRADE-OR-MOVE MESSAGE(S) THROUGH SELECTNET WITH AN AGGREGATE SIZE OFAT LEAST 5,000 SHARES TO ALL MARKET PARTICIPANTS WHOSE QUOTESIT LOCKED/CROSSED. ACTIVITY PERIOD 11/2000 - 12/2000.











Sanction Details: A CENSURE AND A FINE OF $10,000.


Disclosure 40 of 53

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Other Product Type(s): FIPS SECURITIES

Allegations: NASD RULE 2110, NASD MARKETPLACE RULE 6240(A)(2) - WITHOUTADMITTING OR DENYING THE ALLEGATIONS, THE RESPONDENT MEMBERCONSENTED TO THE ENTRY OF FINDINGS THAT IT FAILED TO REPORT TOTHE FIXED INCOME PRICING SYSTEM TRANSACTIONS IN FIPS SECURITIESWITHIN FIVE MINUTES AFTER EXECUTION.



Resolution:


Sanction Details: FINED $5,000

















Other Product Type(s): FIPS SECURITIES



Resolution:


Sanction Details: FINED $5,000.



Disclosure 41 of 53

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Allegations: >07/13/01 SEC RULE 11AC1-1, 11AC1-4, NASD CONDUCT RULES, 2110, 2320,3010, 3320, NASD MARKETPLACE RULE 4613(B),(E)- THESE ALLEGATIONSCONCERN MATTERS ARISING FROM PREVIOUS EXAMINATIONS IN 1998AND 1999 AND REVIEWS BY MARKET REGULATION. MEMBER FIRM INTRANSACTIONS FOR OR WITH A CUSTOMER FAILED TO USE REASONABLEDILIGENCE TO ASCERTAIN THE BEST INTER-DEALER MARKET AND FAILEDTO BUY OR SELL IN SUCH MARKET SO THAT THE RESULTANT PRICE TO ITSCUSTOMER WAS AS FAVORABLE AS POSSIBLE UNDER PREVAILINGMARKET CONDITIONS; FAILED TO DISPLAY IMMEDIATELY CUSTOMERSLIMIT ORDERS IN NASDAQ SECURITIES IN ITS PUBLIC QUOTATION; FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOTHE APPLICABLE SECURITIES LAWS AND REGULATIONS; FAILED TOEXECUTE ORDERS; WITHOUT MAKING REASONABLE EFFORTS TO AVOID ALOCKED OR CROSSED MARKET BY EXECUTING TRANSACTIONS WITH ALLMARKET MAKERS WHOSE QUOTATIONS WOULD BE LOCKED ORCROSSED, ENTERED OR MAINTAINED A BID IN THE NASDAQ STOCKMARKET INC., DURING THE PERIOD OF TIME THAT SECONDARY TRADINGCOMMENCED IMMEDIATELY FOLLOWING THE COMPLETION OF AN INITIALPUBLIC OFFERING OF THE SUBJECT SECURITY WHICH CAUSED A LOCKEDOR CROSSED MARKET CONDITION TO OCCUR IN EACH INSTANCE.














>07/13/01 SEC RULE 11AC1-1, 11AC1-4, NASD CONDUCT RULES, 2110, 2320,3010, 3320, NASD MARKETPLACE RULE 4613(B),(E)- THESE ALLEGATIONSCONCERN MATTERS ARISING FROM PREVIOUS EXAMINATIONS IN 1998AND 1999 AND REVIEWS BY MARKET REGULATION. MEMBER FIRM INTRANSACTIONS FOR OR WITH A CUSTOMER FAILED TO USE REASONABLEDILIGENCE TO ASCERTAIN THE BEST INTER-DEALER MARKET AND FAILEDTO BUY OR SELL IN SUCH MARKET SO THAT THE RESULTANT PRICE TO ITSCUSTOMER WAS AS FAVORABLE AS POSSIBLE UNDER PREVAILINGMARKET CONDITIONS; FAILED TO DISPLAY IMMEDIATELY CUSTOMERSLIMIT ORDERS IN NASDAQ SECURITIES IN ITS PUBLIC QUOTATION; FIRM'SSUPERVISORY SYSTEM DID NOT PROVIDE FOR SUPERVISIONREASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TOTHE APPLICABLE SECURITIES LAWS AND REGULATIONS; FAILED TOEXECUTE ORDERS; WITHOUT MAKING REASONABLE EFFORTS TO AVOID ALOCKED OR CROSSED MARKET BY EXECUTING TRANSACTIONS WITH ALLMARKET MAKERS WHOSE QUOTATIONS WOULD BE LOCKED ORCROSSED, ENTERED OR MAINTAINED A BID IN THE NASDAQ STOCKMARKET INC., DURING THE PERIOD OF TIME THAT SECONDARY TRADINGCOMMENCED IMMEDIATELY FOLLOWING THE COMPLETION OF AN INITIALPUBLIC OFFERING OF THE SUBJECT SECURITY WHICH CAUSED A LOCKEDOR CROSSED MARKET CONDITION TO OCCUR IN EACH INSTANCE.


Resolution:


Sanction Details: CENSURED AND FINED $39,000.00




Initiated By: NASD




Other Product Type(s): EQUITY LISTED (COMMON & PREFERRED)

Allegations: CUMLATIVE NASD FINDINGS W/ REGARD TO ALLEGED VIOLATIONSARISING FROM THE FOLLOWING EXAMINATIONS & REVIEWS: 1)1998 TMMSEXAM 2)1999 TMMS EXAM 3)FIRM QUOTE REVIEW 4)LOCKED & CROSSED5)SECOND LOCKED & CROSSED.








Disgorgement


CENSURED & FINED

Other Product Type(s): EQUITY LISTED (COMMON & PREFERRED)


Resolution:


Sanction Details: $39000.00 PAID 7/24/2001

Firm Statement SWS SECURITIES SUBMITTED A LETTER OF AWC IN WHICH THE FIRM WASCENSURED AND FINED $39000. W/O ADMITTING OR DENYING THEALLEGATIONS, THE FIRM CONSENTED TO THE DESCRIBED SANCTIONSAND TO THE ENTRY OF FINDINGS THAT, IN TRANSACTIONS FOR OR WITH ACUSTOMER, THE FIRM FAILED TO USE REASONABLE DILIGENCE TOASCERTAIN THE BEST INTER-DEALER MKT AND FAILED TO BUY OR SELL INSUCH MKT SO THAT THE RESULTANT PRICE TO ITS CUSTOMER WAS ASFAVORABLE AS POSSIBLE.



Disclosure 42 of 53

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Allegations: 04-10-00, SEC RULES 17(A)(2),(3), NASD RULE 2110 - RESPONDENTMEMBER EFFECTED DEFEASANCE ESCROW TRANSACTIONS WITHMUNICIPALITIES AT PRICES NOT REASONABLY RELATED TO THE CURRENTWHOLESALE MARKET PRICES FOR THE SECURITIES UNDER THEPARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING THE PERTINENTTAX REGULATIONS. THE FIRM KNEW, OR SHOULD HAVE KNOWN, THAT THEPRICES IT CHARGED WERE NOT REASONABLY RELATED TO THEPREVAILING WHOLESALE MARKET PRICES OF THE SECURITIES. THEEXCESSIVE MARKUPS ALSO JEOPARDIZED THE TAX-EXEMPT STATUS OFTHOSE MUNICIPALITIES REFUNDING BONDS AND DIVERTED MONEY FROMTHE U.S. TREASURY TO THE FIRM WHEN THE TRANSACTION WAS INPOSITIVE ARBITRAGE OR REDUCED THE SAVINGS AVAILABLE TO THEMUNICIPALITIES FROM THE REFUNDINGS WHEN THE TRANSACTION WASIN NEGATIVE ARBITRAGE.














Resolution:

Other Sanctions Ordered: WITHIN 10 BUSINESS DAYS, MAKE PAYMENTS TOTALING $61,298.94RELATED TO SALES OF DEFEASANCE ESCROW SECURITIES TO CERTAINMUNICIPAL ISSUERS IN CONNECTION WITH ADVANCE REFUNDINGS INNEGATIVE ARBITRAGE. PAY $473,992.30 TO THE U.S. TREASURY UNDER ANAGREEMENT SIMULTANEOUSLY ENTERED INTO AMONG THE FIRM, THEIRS, AND THE U.S. ATTORNEY FOR THE SOUTHERN DISTRICT OF NEWYORK. AT THE TIME PAYMENTS AR MADE TO THE MUNICIPALITIES ANDTHE U.S. TREASURY, COPIES OF THE PAYMENTS AND ANY COVERLETTERS SHALL BE SENT TO DISTRICT NO. 5.

Sanction Details: 11-01-00, $35,000 PAID 4/17/00

Sanctions Ordered: Censure



Initiated By: NASD



Principal Product Type: Debt - Government

Allegations: AS PART OF A GLOBAL SETTLEMENT BY SEVENTEEN BROKER-DEALERS,THE NASD INSTITUTED AND SETTLED DISCIPLINARY PROCEEDINGSAGAINST SEVEN BROKER-DEALERS, INCLUDING SWS SECURITIES, INC.,ALLEGING UNLAWFUL, UNDISCLOSED OVERCHARGES IN CONNECTIONWITH THE PRICING OF ESCROW SECURITIES SOLD TO CERTAINMUNICIPAL BOND ISSUERS FOR USE IN ADVANCE REFUNDINGTRANSACTIONS.








Disgorgement


CENSURE

Principal Product Type: Debt - Government



Resolution:


Sanction Details: SWS SECURITIES, INC. AGREED TO PAY DISGORGEMENT TO AN ISSUER INTHE AMOUNT OF $61,298.94, AND TO THE U.S. TREASURY IN THE AMOUNTOF $473,992.30. THE ISSUER WAS PAID ON APRIL 19, 2000, AND THE U.S.TREASURY WAS PAID ON APRIL 13, 2000.

Firm Statement SWS SECURITIES SIMULTANEOUSLY SETTLED AN ACTION THAT HAD BEENBROUGHT UNDER THE FALSE CLAIMS ACT. THIS ACTION IS ALSO RELATEDTO THE MARK-UPS CHARGED ON ESCROW SECURITIES SOLD TO CERTAINMUNICIPAL BOND ISSUERS.



Disclosure 43 of 53

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Initiated By: NYSE


Other


FINED $2,500.00


Docket/Case Number: N/A



Allegations: MINOR RULE VIOLATION OF RULE 132.30. FAILURE TO SUBMIT AUDIT TRAILDATA








FINED $2,500.00


Resolution:


Sanction Details: PAID $2,500.00 FINE ON 06/28/89

Sanctions Ordered: Monetary/Fine $250.00

Settled

Disclosure 44 of 53

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Initiated By: STATE OF MASSACHUSETTS


Other


FINED $5,450.00


Docket/Case Number: E-89-246



Allegations: TRANSACTIONS IN THE STATE PRIOR TO REGISTRATION.



Resolution:


Sanction Details: $5,450.00 FINE PAID 09/22/89


Other

Disclosure 45 of 53

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Allegations: VIOLATION OF MSRB RULE G-17. DID NOT INCLUDE ALL REPORTABLECONTRIBUTIONS.







Initiated By: DISTRICT SIX BUSINESS CONDUCT COMMITTEE


Censure


$2,000.00 FINE


Docket/Case Number: CO6970008



Allegations: VIOLATION OF MSRB RULE G-17. DID NOT INCLUDE ALL REPORTABLECONTRIBUTIONS.


Resolution:

Other Sanctions Ordered: LETTER OF AWC

Sanction Details: $2,000.00 FINE PAID 05/01/97



Disclosure 46 of 53

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Principal Product Type:


Allegations:


Resolution: Acceptance, Waiver & Consent(AWC)131©2020 FINRA. All rights reserved. Report about HILLTOP SECURITIES INC.






Resolution:


Sanction Details:

Regulator Statement ON NOVEMBER 25, 1996, DISTRICT NO. 6 NOTIFIED SOUTHWESTSECURITIES, INC. THAT THE LETTER OF ACCEPTANCE, WAIVER ANDCONSENT NO. C06960016 WAS ACCEPTED; THEREFORE, RESPONDENTMEMBER IS FINED $250 - (MSRB RULES G-37 AND G-38 - FILED ANINACCURATE FORM G-37/G-38).

***$250.00 PAID ON 1/7/97, INVOICE #96-06-911***




Initiated By: DISTRICT SIX BUSINESS CONDUCT COMMITTEE


Censure


$250 FINE


Docket/Case Number: CO6960016



Allegations: VIOLATION OF MSRB RULE G-37/G-38 FOR FAILURE TO SUBMIT COMPLETEINFORMATION ON MUNICIPAL FINANCINGS.



Resolution:

Other Sanctions Ordered: LETTER OF AWC

Sanction Details: $250.00 FINE PAID 09/18/96

Firm Statement THIS WAS A FAILURE TO INCLUDE ONE MUNICIPAL UNDERWRITING INWHICH SWS SECURITIES ACTED AS MANAGER. WE HAVE SINCE PUT INPLACE PROCEDURES TO PREVENT THIS FROM OCCURRING IN THEFUTURE.

Sanctions Ordered: CensureMonetary/Fine $250.00







Firm Statement THIS WAS A FAILURE TO INCLUDE ONE MUNICIPAL UNDERWRITING INWHICH SWS SECURITIES ACTED AS MANAGER. WE HAVE SINCE PUT INPLACE PROCEDURES TO PREVENT THIS FROM OCCURRING IN THEFUTURE.

Disclosure 47 of 53

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Initiated By: ILLINOIS








Allegations: A NOTICE OF HEARING WAS ISSUED AGAINST SOUTHWEST SECURITIES,INC. ALLEGING A FAILURE OF RESPONDENT TO TIMELY AMEND ITS FORMBD. AUTHORITY: SECTION 12.D OF THE ILLINOIS SECURITIES LAW OF 1953,AS AMENDED.



Resolution:


Sanction Details: BY MEANS OF STIPULTION, ILLINOIS HAS ENTERED A CONSENT ORDERAGAINST RESPONDENT. FINDINGS OF FACT AND CONCLUSIONS OF LAWARE THAT RESPONDENT FAILED TO TIMELY AMEND FORM BD ON FILEWITH THE SECRETARY O- STATE THEREBY VIOLATING SECTION 12.D OFTHE ILLINOS SECURITIES LAW OF 1953, AS AMENDED. AN ADMINISTRATIVEFINE OF $2,500 HAS BEEN ASSESSED. CONSENT ORDER OF CENSUREISSUED JUNE 28, 1989 WAS AMENDED ON JULY 5, 1989. NO CHANGE INSANCTIONS IMPOSED.


Consent

iReporting Source: 133©2020 FINRA. All rights reserved. Report about HILLTOP SECURITIES INC.






Initiated By: STATE OF ILLINOIS


Censure


$2,500.00 FINE





Allegations: NOT FILING FORM BD AMENDMENTS DIRECTLY WITH THE STATE



Resolution:


Sanction Details: PAID $2,500.00


Consent

Disclosure 48 of 53

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Docket/Case Number: MS-614-AWC



Allegations:









Resolution:


Sanction Details:

Regulator Statement MARKET SURVEILLANCE COMMITTEE COMPLAINT #MS-614-AWC:

LETTER OF ACCEPTANCE, WAIVER, AND CONSENT (AWC) FILEDSEPTEMBER25, 1987 ALLEGING VIOLATIONS OF PART VI, SECTION 4(a) OFSCHEDULE D IN THAT RESPONDENT SOUTHWEST SECURITIES, INC.FAILEDTO REPORT ITS NASDAQ VOLUME.

THE AWC WAS ACCEPTED BY THE MARKET SURVEILLANCE COMMITTEEON1/7/88 AND BY THE NATIONAL BUSINESS CONDUCT COMMITTEE ON1/26/88. FINE $250 ******* $250 FINE PAID 11/3/87


Consent


Initiated By: NASD


Censure


AWC WITH $250.00 FINE


Docket/Case Number: MS-614-AWC



Allegations: FAILURE TO REPORT NASDAQ VOLUME











Sanction Details: PAID $250.00 ON 07/06/88

Sanctions Ordered: CensureMonetary/Fine $250.00

Disclosure 49 of 53

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Allegations: SOUTHWEST SECURITIES INCORPORATED, A MEMBER ORGANIZATION,VIOLATED SEC REGULATIONS: 240.15C3-3(E) IN THAT ON EIGHTOCCASIONS IN 1984 IT FAILED TO MAKE REQUIRED DEPOSITS TO ASPECIAL RESERVE BANK ACCOUNT FOR THE EXCLUSIVE BENEFIT OFCUSTOMERS; 240.15C3-3(G) IN THAT IN MARCH 1984 IT MADE AWITHDRAWAL FROM ITS SPECIAL RESERVE BANK ACCOUNT FOR THEEXCLUSIVE BENEFIT OF CUSTOMERS WITHOUT MAKING A COMPUTATIONSUPPORTING SUCH WITHDRAWAL; 240.15C3-3(B) AND (D) IN THAT ITFAILED ON SPECIFIED OCCASIONS IN 1984 TO OBTAINPOSSESSION OR CONTROL OF CUSTOMERS' FULLY-PAID OR EXCESSMARGIN SECURITIES; 240.17A-4(B)(8)(III) IN THAT FOR A PERIOD IN 1983 ITFAILED TO PRESERVE RECORDS RELATING TO INFORMATION FORPOSSESSION OR CONTROL REQUIREMENTS UNDER SEC REGULATION240.15C3-3; 240.15C3-3(M) IN THAT ON SPECIFIED OCCASIONS IN 1984 ITFAILED TO EFFECT REQUIRED BUY-IN PROCEDURES FOR LONG SALES OFSECURITIES BY CUSTOMERS; AND IT VIOLATED: REGULATION T OF THEFEDERAL RESERVE BOARD, 220.8(B) IN THAT IT FAILED ON CERTAINSAMPLED OCCASIONS IN 1984 TO OBTAIN PAYMENT FOR SECURITIESPURCHASES IN CUSTOMER ACCOUNTS OR TO TAKE OTHER APPROPRIATEACTION; SEC REGULATION 240.17A-3(A)(11) IN THAT IN CONNECTION WITHITS CALCULATION OF NET CAPITAL FOR MARCH 30,1984, IT FAILED TO COMPREHEND ADJUSTMENTS REQUIRED BY SECREGULATION 240.15C3-1; AND EXCHANGE RULE 722 IN THAT IT FAILED TOMAINTAIN REQUIRED WRITTEN PROCEDURES FOR REVIEW OF OPTIONACCOUNTS AND FAILED TO HAVE ITS SENIOR REGISTERED OPTIONSPRINCIPAL SUPERVISE THE WORK OF ITS COMPLIANCE REGISTEREDOPTIONS PRINCIPAL












Resolution:


Sanction Details: CONSENT TO CENSURE AND $50,000 FINE.


Consent


Initiated By: NYSE


Censure


FINED $60,000.00





Allegations: VIOLATIONS OF REGULATION 240.15C3-3



Resolution:


Sanction Details: SWS SECURITIES WAS FINED $60,000.00 AND DON BUCHHOLZ WASCENSURED.


Settled






Sanction Details: SWS SECURITIES WAS FINED $60,000.00 AND DON BUCHHOLZ WASCENSURED.

Firm Statement SWS SECURITIES WAS FINED $60,000.00 AND DON BUCHHOLZ WASCENSURED.

Disclosure 50 of 53

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Docket/Case Number: MS-177



Allegations:



Resolution:


Sanction Details:

Regulator Statement 12/6/85: MARKET SURVEILLANCE COMMITTEE COMPLAINT #MS-177SC-SUMMARY COMPLAINT FILED ON SEPTEMBER 20, 1985 ALLEGINGVIOLATIONS OF PART I, SECTION C.3.(a) OF SCHEDULE D OF THEASSOCIATION'S BY-LAWS IN THAT RESPONDENT ENTERED QUOTATIONSINTOTHE NASDAQ SYSTEM ON AUGUST 2 AND 7, 1985 THAT WERE NOTREASONABLY RELATED TO THE PERVAILING MARKET. SUMMARYCOMPLAINTACCEPTED 11/1/85. $250 FINE PAID 11/6/85. ***11/8/85, NFC# 19,PAID IN FULL.


Consent

iReporting Source:







Initiated By: NASD


Other


FINED $250.00


Docket/Case Number: MS-177



Allegations: INCONSISTENT PRINT



Resolution:


Sanction Details: PAID $250 ON 01/06/85


Settled

Disclosure 51 of 53

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Initiated By: IOWA



Docket/Case Number: C84-06-129



Other Product Type(s): UNKNOWN TYPE OF SECURITIES.

Allegations: SOUTHWEST SECURITIES, INC. EFFECTED TRANSACTIONS FOR IOWARESIDENTS THROUGH ANOTHER BROKER-DEALER. THESE VIOLATIONSOCCURED PRIOR TO SOUTHWEST SECURITIES BECOMING LICENSED INTHE STATE OF IOWA AS A BROKER-DEALER ON MAY 1, 1984.










Resolution:


Sanction Details: SOUTHWEST SECURITIES DID NOT REQUEST A HEARING IN THE MANNERREQUIRED BY THE ORDER OF CENSURE AND FINE.


Decision


Initiated By: STATE OF IOWA


Censure


FINED $1,000.00


Docket/Case Number: C84-06-129



Allegations: TRANSACTIONS WITH IOWA RESIDENTS PRIOR TO REGISTRATION



Resolution:


Sanction Details: PAID $1,000.00


Settled

Disclosure 52 of 53

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Disclosure 52 of 53


Initiated By: AMERICAN STOCK EXCHANGE




Docket/Case Number: 83-D-29



Allegations:



Resolution:


Sanction Details:

Regulator Statement SOUTHWEST SECURITIES, INC. ("SOUTHWEST") A REGULAR MEMBERORGANIZATION OF THE EXCHANGE, WAS DISCIPLINED FOR ENGAGING INCONDUCT INCONSISTENT WITH JUST AND EQUITABLE PRINCIPLES OFTRADE IN VIOLATION OF (1)ARTICLE V, SECTION 4(h) OF THECONSTITUTION, BY (i) IMPROPERLY USING THE OCC POSITIONADJUSTMENT PROCESS IN EXCHANGE LISTED OPTIONS FOR THEACCOUNTSOF TWO CUSTOMERS, AND (ii) GENERATING CUSTOMER ORDERS ANDCONFIRMATIONS OF TRADES, INCLUDING COMMISSION CHARGES FORSUCHTRADES, FOR THE PURPOSE OF CREATING THE IMPRESSION THATACTUALTRADES HAD BEEN EFFECTED IN THE OPEN MARKET IN ACCORDANCEWITHTHE CUSTOMERS' TRADING STRATEGY; AND (2)ARTICLE V, SECTION 4(c) OF THE CONSTITUTION BY CROSSING EXCHANGE LISTED OPTIONSFOR THE ACCOUNTS OF TWO CUSTOMERS RESULTING IN WASH SALETRANSACTIONS INVOLVING NO CHANGE OF OWNERSHIP.SOUTHWESTSETTLED THE CHARGES WITHOUT ADMITTING OR DENYING THEEXCHANGE'S ALLEGATIONS.SOUTHWEST WAS FINED $10,000 ANDREQUIRED WITHIN 30 DAYS FROM THE DATE OF THE DECISION TODEVELOP AND IMPLEMENT WRITTEN PROCEDURES SATISFACTORY TOTHEEXCHANGE WHICH WILL PRECLUDE THE SUBJECT VIOLATIONS FROMRECURRING.


Consent






SOUTHWEST SECURITIES, INC. ("SOUTHWEST") A REGULAR MEMBERORGANIZATION OF THE EXCHANGE, WAS DISCIPLINED FOR ENGAGING INCONDUCT INCONSISTENT WITH JUST AND EQUITABLE PRINCIPLES OFTRADE IN VIOLATION OF (1)ARTICLE V, SECTION 4(h) OF THECONSTITUTION, BY (i) IMPROPERLY USING THE OCC POSITIONADJUSTMENT PROCESS IN EXCHANGE LISTED OPTIONS FOR THEACCOUNTSOF TWO CUSTOMERS, AND (ii) GENERATING CUSTOMER ORDERS ANDCONFIRMATIONS OF TRADES, INCLUDING COMMISSION CHARGES FORSUCHTRADES, FOR THE PURPOSE OF CREATING THE IMPRESSION THATACTUALTRADES HAD BEEN EFFECTED IN THE OPEN MARKET IN ACCORDANCEWITHTHE CUSTOMERS' TRADING STRATEGY; AND (2)ARTICLE V, SECTION 4(c) OF THE CONSTITUTION BY CROSSING EXCHANGE LISTED OPTIONSFOR THE ACCOUNTS OF TWO CUSTOMERS RESULTING IN WASH SALETRANSACTIONS INVOLVING NO CHANGE OF OWNERSHIP.SOUTHWESTSETTLED THE CHARGES WITHOUT ADMITTING OR DENYING THEEXCHANGE'S ALLEGATIONS.SOUTHWEST WAS FINED $10,000 ANDREQUIRED WITHIN 30 DAYS FROM THE DATE OF THE DECISION TODEVELOP AND IMPLEMENT WRITTEN PROCEDURES SATISFACTORY TOTHEEXCHANGE WHICH WILL PRECLUDE THE SUBJECT VIOLATIONS FROMRECURRING.


Initiated By: AMEX


Other


FINED $10,000.00 AND REQUIRED TO DEVELOP AND IMPLEMENT WRITTENPROCEDURES SATISFACTORY TO THE EXCHANGE TO PRECLUDE THESUBJECT VIIOLATIONS FROM RECURRING.


Docket/Case Number: 83-D-29



Allegations: ORDERS WERE PLACED BY A CORRELSPONDENT BROKER, S. C. COSTACOMPANY, WHICH WERE CROSSES, BUT A CHANGE OF OWNERSHIP WASNOT ACCOMPLISHED.



Resolution:

Other Sanctions Ordered: WRITTEN SUPERVISORY PROCUEDURES ACCEPTABLE TO THE EXCHANGETO BE IN PLACE WITHIN 30 DAYS.

Sanction Details: PAID $10,000.00 FINE IN JANUARY, 1984

Firm Statement ORDERS WERE PLACE BY A CORRELSPONDENT BROKER, S. C. COSTA,WHICH WERE CROSSES, BUT A CHANGE OF OWNERSHIP WAS NOTACCOMPLISHED


Settled

Disclosure 53 of 53

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Initiated By: WISCONSIN




Docket/Case Number: Unknown




Allegations:



Resolution:


Sanction Details:

Regulator Statement ON FEBRUARY 8, 1983, THE COMMISSIONER ISSUED A CONSENT ORDERAGAINST SOUTHWEST SECURITIES, INC., DALLAS, TEXAS DENYING ITSAPPLICATION FOR A WISCONSIN BROKER-DEALER LICENSE ANDPROHIBITING THE RESPONDENT FROM TRANSACTING BUSINESS INWISCONSIN AS A BROKER-DEALER UNLESS PROPERLY LICENSED. THEORDER WAS BASED ON STAFF ALLEGATIONS THAT THE RESPONDENT,WHOAPPLIED FOR A WISCONSIN BROKER-DEALER LICENSE ON FEBRUARY 8,1982, HAD ACCEPTED AND CAUSED TO BE EFFECTED AT LEASTEIGHTY-FIVE SECURITIES TRANSACTIONS FOR THE ACCOUNTS OF ATLEASTTHIRTY-FIVE PERSONS IN WISCONSIN FROM JANUARY 1, 1981 THROUGHNOVEMBER 1, 1982. THE RESPONDENT'S ACTIVITIES WERE ALLEGED TOCONSTITUTE THE TRANSACTION OF BUSINESS IN WISCONSIN AS ASECURITIES BROKER-DEALER WHEN NOT APPROPRIATELY LICENSED, AWILFUL VIOLATION OF SEC. 551.31(1), WIS. STATS., AND A CAUSEFOR THE DENIAL OF RESPONDENT'S PENDING BROKER-DEALER LICENSEPURSUANT TO SEC. 551.34(1) (INTRO.) AND (B), WIS. STATS. 1906(L).

Sanctions Ordered: Revocation/Expulsion/Denial

Consent






ON FEBRUARY 8, 1983, THE COMMISSIONER ISSUED A CONSENT ORDERAGAINST SOUTHWEST SECURITIES, INC., DALLAS, TEXAS DENYING ITSAPPLICATION FOR A WISCONSIN BROKER-DEALER LICENSE ANDPROHIBITING THE RESPONDENT FROM TRANSACTING BUSINESS INWISCONSIN AS A BROKER-DEALER UNLESS PROPERLY LICENSED. THEORDER WAS BASED ON STAFF ALLEGATIONS THAT THE RESPONDENT,WHOAPPLIED FOR A WISCONSIN BROKER-DEALER LICENSE ON FEBRUARY 8,1982, HAD ACCEPTED AND CAUSED TO BE EFFECTED AT LEASTEIGHTY-FIVE SECURITIES TRANSACTIONS FOR THE ACCOUNTS OF ATLEASTTHIRTY-FIVE PERSONS IN WISCONSIN FROM JANUARY 1, 1981 THROUGHNOVEMBER 1, 1982. THE RESPONDENT'S ACTIVITIES WERE ALLEGED TOCONSTITUTE THE TRANSACTION OF BUSINESS IN WISCONSIN AS ASECURITIES BROKER-DEALER WHEN NOT APPROPRIATELY LICENSED, AWILFUL VIOLATION OF SEC. 551.31(1), WIS. STATS., AND A CAUSEFOR THE DENIAL OF RESPONDENT'S PENDING BROKER-DEALER LICENSEPURSUANT TO SEC. 551.34(1) (INTRO.) AND (B), WIS. STATS. 1906(L).


Initiated By: STATE OF WISCONSIN


Denial



Docket/Case Number: N/A



Allegations: TRANSACTIONS WITH WISCONSIN RESIDENTS PRIOR TO REGISTRATION



Resolution:

Other Sanctions Ordered: DENIED REGISTRATION IN WISCONSIN FOR 120 DAYS

Sanction Details: DENIED REGISTRATION IN WISCONSIN FOR 120 DAYS BEGINNING 2/08/83

Sanctions Ordered: Revocation/Expulsion/Denial

Settled






Civil - Pending

This type of disclosure event involves a pending civil court action that with seek an injunction to cease certain investment-related activity or alleges a violation of any investment-related statute or regulation.

Disclosure 1 of 1


Initiated By: STATE OF LOUISIANA

Relief Sought: Money Damages (Private/Civil Complaint)

Other Relief Sought: ACCORDINGLY, PLAINTIFFS DEMAND RELIEF AS FOLLOWS:A. FOR THE UNLAWFUL CONDUCT ALLEGED HEREIN TO BE ADJUDGEDAND DECREED TO BE AN UNLAWFUL RESTRAINT OF TRADE IN VIOLATIONOF SECTION 1 OF THE SHERMAN ACT;B. FOR DEFENDANTS, THEIR SUBSIDIARIES, AFFILIATES, SUCCESSORS,TRANSFEREES, ASSIGNEES AND THE RESPECTIVE OFFICERS,DIRECTORS, PARTNERS, AGENTS, AND EMPLOYEES AND ALL OTHERPERSONS ACTING ORCLAIMING TO ACT ON THEIR BEHALF, BE PERMANENTLY ENJOINED ANDRESTRAINED FROM CONTINUING AND MAINTAINING THE CONSPIRACYALLEGED IN THE COMPLAINT;C. FOR A JUDGMENT AWARDING PLAINTIFF DAMAGES AGAINSTDEFENDANTS FOR DEFENDANTS' VIOLATIONS OF THE FEDERALANTITRUST LAWS, IN AN AMOUNT TO BE TREBLED IN ACCORDANCE WITHSUCH LAWS;D. FOR AN AWARD TO PLAINTIFF OF ITS COSTS OF SUIT, INCLUDINGREASONABLE ATTORNEYS' AND EXPERTS' FEES AND EXPENSES;E. FOR AN ORDER ENJOINING DEFENDANTS FROM ENGAGING INFURTHER ANTICOMPETITIVE CONDUCT IN THE GSE BOND MARKET SOTHAT PUBLIC CONFIDENCE IN THIS MARKET CAN BE RESTORED; ANDF. FOR SUCH OTHER AND FURTHER RELIEF AS THE COURT MAY DEEMJUST AND PROPER.

Date Court Action Filed: 02/03/2020


Other Product Types: GOVERNMENT-SPONSORED ENTITY (GSE) BONDS.

Court Details: UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OFLOUISIANA. CASE NO. 3:19-CV-00638

CONSPIRACY TO FIX PRICES AT WHICH INVESTORS BOUGHT AND SOLDGSE BONDS.

Allegations:

Current Status: Pending

Date Notice/Process Served: 02/04/2020

Firm Statement STATE ALLEGES THAT THE FIRM FAILED TO MEET ITS DUTY OF CAREOBLIGATION TO AVOID RECOMMENDING INVESTMENTS WHICH IT NEW ORSHOULD HAVE KNOWN WOULD CONSTITUTE A FRAUD OR A SCAM.






Firm Statement STATE ALLEGES THAT THE FIRM FAILED TO MEET ITS DUTY OF CAREOBLIGATION TO AVOID RECOMMENDING INVESTMENTS WHICH IT NEW ORSHOULD HAVE KNOWN WOULD CONSTITUTE A FRAUD OR A SCAM.






Arbitration Award - Award / Judgment

Brokerage firms are not required to report arbitration claims filed against them by customers; however, BrokerCheckprovides summary information regarding FINRA arbitration awards involving securities and commodities disputesbetween public customers and registered securities firms in this section of the report. The full text of arbitration awards issued by FINRA is available at www.finra.org/awardsonline.

Disclosure 1 of 20


Type of Event: ARBITRATION

Arbitration Forum:

Case Initiated:

Case Number:

Allegations:

Disputed Product Type:

Sum of All Relief Requested:

Disposition:

Disposition Date:

Sum of All Relief Awarded:

NASD

12/27/2001

01-06902

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT RELATED-BREACH OF CONTRACT;ACCOUNT RELATED-NEGLIGENCE

COMMON STOCK; DO NOT USE-NO OTHER TYPE OF SEC INVOLVE

$1,000,000.00

AWARD AGAINST PARTY

02/27/2003

$80,000.00

There may be a non-monetary award associated with this arbitration.Please select the Case Number above to view more detailed information.

Disclosure 2 of 20

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Arbitration Forum:

Case Initiated:

Case Number:

Allegations:


NASD

07/27/2004

04-05292

ACCOUNT ACTIVITY-OTHER; ACCOUNT RELATED-ERRORS-CHARGES; DONOT USE-NO OTHER CONTROVERSY INVOLVED

COMMON STOCK; DO NOT USE-NO OTHER TYPE OF SEC INVOLVE;OPTIONS





www.finra.org/awardsonline

https://www.finra.org/arbitration-mediation/arbitration-awards-online?search=01-06902





Disposition:

Disposition Date:


COMMON STOCK; DO NOT USE-NO OTHER TYPE OF SEC INVOLVE;OPTIONS

$28,250.00

AWARD AGAINST PARTY

08/30/2005

$17,500.00


Disclosure 3 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


FINRA

07/31/2014

14-02286

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-MANIPULATION; ACCOUNT ACTIVITY-OMISSION OF FACTS; ACCOUNTACTIVITY-SUITABILITY; ACCOUNT RELATED-BREACH OF CONTRACT;ACCOUNT RELATED-FAILURE TO SUPERVISE; ACCOUNT RELATED-NEGLIGENCE

MUTUAL FUNDS

$100,000.00

AWARD AGAINST PARTY

03/18/2016

$2,500.00


Disclosure 4 of 20

i



Allegations: ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-UNAUTHORIZED TRADING;ACCOUNT RELATED-BREACH OF CONTRACT; ACCOUNT RELATED-FAILURETO SUPERVISE; ACCOUNT RELATED-MARGIN CALLS; ACCOUNT RELATED-NEGLIGENCE







Arbitration Forum:

Case Initiated:

Case Number:



Disposition:

Disposition Date:


FINRA

10/22/2014

14-02864

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-UNAUTHORIZED TRADING;ACCOUNT RELATED-BREACH OF CONTRACT; ACCOUNT RELATED-FAILURETO SUPERVISE; ACCOUNT RELATED-MARGIN CALLS; ACCOUNT RELATED-NEGLIGENCE

OPTIONS; OTHER TYPES OF SECURITIES; PREFERRED STOCK

Unspecified Damages

AWARD AGAINST PARTY

04/05/2016

$167,737.07


Disclosure 5 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


FINRA

06/08/2018

18-02136

ACCOUNT ACTIVITY-OTHER; ACCOUNT ACTIVITY-SUITABILITY; ACCOUNTRELATED-BREACH OF CONTRACT; ACCOUNT RELATED-OTHER

UNIT INVESTMENT TRUST

$950,000.00

AWARD AGAINST PARTY

02/24/2020

$699,663.64


Disclosure 6 of 20

i










Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

10/14/1991

91-03090

ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-SUITABILITY; ACCOUNT ACTIVITY-UNAUTHORIZED TRADING; ACCOUNTRELATED-FAILURE TO SUPERVISE


$33,654.00

AWARD AGAINST PARTY

07/09/1992

$26,000.00


Disclosure 7 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

01/23/1992

91-03721

ACCOUNT ACTIVITY-SUITABILITY; UNKNOWN TYPE OF CONTROVERSIES

COMMON STOCK; UNKNOWN TYPE OF SECURITIES

$12,930.43

AWARD AGAINST PARTY

09/23/1992

$11,341.84


Disclosure 8 of 20

i










Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

02/03/1992

92-00082

DO NOT USE-EXECUTIONS-FAILURE TO EXECUTE; UNKNOWN TYPE OFCONTROVERSIES

COMMON STOCK; UNKNOWN TYPE OF SECURITIES

$83,850.00

AWARD AGAINST PARTY

09/24/1992

$7,650.00


Disclosure 9 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

01/10/1992

92-00098

ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-SUITABILITY; ACCOUNT RELATED-BREACH OF CONTRACT; ACCOUNTRELATED-FAILURE TO SUPERVISE

COMMODITIES FUTURES; COMMON STOCK; DO NOT USE-NO OTHER TYPEOF SEC INVOLVE; OPTIONS

$138,000.00

AWARD AGAINST PARTY

02/09/1993

$90,000.00









Disclosure 10 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

02/03/1992

92-00287

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-OMISSION OF FACTS;ACCOUNT RELATED-FAILURE TO SUPERVISE

DO NOT USE-NO OTHER TYPE OF SEC INVOLVE; LIMITED PARTNERSHIPS

$148,906.46

AWARD AGAINST PARTY

09/21/1992

$2,197.43


Disclosure 11 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

08/03/1994

94-02272

ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-OTHER; DONOT USE-NO OTHER CONTROVERSY INVOLVED

COMMON STOCK; MUNICIPAL BOND FUNDS; OPTIONS; PREFERRED STOCK

$8,000.00

AWARD AGAINST PARTY

11/29/1994

$3,566.40









Disclosure 12 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

10/06/1994

94-02680

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-SUITABILITY; ACCOUNTRELATED-BREACH OF CONTRACT


$67,571.70

AWARD AGAINST PARTY

01/26/1996

$83,168.22


Disclosure 13 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:

NASD

11/21/1994

94-04445

ACCOUNT ACTIVITY-OMISSION OF FACTS; ACCOUNT ACTIVITY-SUITABILITY;DO NOT USE-NO OTHER CONTROVERSY INVOLVED


$23,168.68

AWARD AGAINST PARTY

02/01/1996








Sum of All Relief Awarded: $23,169.00


Disclosure 14 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

03/07/1996

96-00605

ACCOUNT RELATED-OTHER; DO NOT USE-NO OTHER CONTROVERSYINVOLVED

DO NOT USE-NO OTHER TYPE OF SEC INVOLVE; UNKNOWN TYPE OFSECURITIES

$20,000.00

AWARD AGAINST PARTY

06/18/1997

$2,000.00


Disclosure 15 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



NASD

07/22/1996

96-03012

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT RELATED-BREACHOF CONTRACT; ACCOUNT RELATED-NEGLIGENCE; DO NOT USE-NO OTHERCONTROVERSY INVOLVED

COMMON STOCK; DO NOT USE-NO OTHER TYPE OF SEC INVOLVE;WARRANTS/RIGHTS

Unspecified Damages154©2020 FINRA. All rights reserved. Report about HILLTOP SECURITIES INC.








Disposition:

Disposition Date:


Unspecified Damages

AWARD AGAINST PARTY

09/26/1997

$25,000.00


Disclosure 16 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

08/12/1997

97-03961

ACCOUNT ACTIVITY-UNAUTHORIZED TRADING; ACCOUNT RELATED-BREACH OF CONTRACT; ACCOUNT RELATED-TRANSFER; DO NOT USE-NOOTHER CONTROVERSY INVOLVED


$14,058.00

AWARD AGAINST PARTY

08/14/1998

$14,058.00


Disclosure 17 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:

NASD

12/24/1998

98-03778

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-CHURNING; ACCOUNT ACTIVITY-OMISSION OF FACTS; ACCOUNT RELATED-BREACH OF CONTRACT








Case Number:



Disposition:

Disposition Date:


98-03778


$2,790,282.01

AWARD AGAINST PARTY

12/27/2001

$955,992.01


Disclosure 18 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

05/13/1999

99-01874

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT RELATED-FAILURE TO SUPERVISE;ACCOUNT RELATED-NEGLIGENCE


$2,305,000.00

AWARD AGAINST PARTY

10/27/2000

$29,000.00


Disclosure 19 of 20

i



Arbitration Forum:

Allegations:

NASD

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY-SUITABILITY; ACCOUNT RELATED-BREACH OF CONTRACT; ACCOUNTRELATED-FAILURE TO SUPERVISE








Arbitration Forum:

Case Initiated:

Case Number:



Disposition:

Disposition Date:


NASD

06/30/1999

99-02825

COMMON STOCK; DO NOT USE-NO OTHER TYPE OF SEC INVOLVE;MUTUAL FUNDS

$421,180.87

AWARD AGAINST PARTY

11/02/2000

$62,150.00


Disclosure 20 of 20

i



Arbitration Forum:

Case Initiated:

Case Number:

Allegations:



Disposition:

Disposition Date:


NASD

11/30/1999

99-04893

ACCOUNT RELATED-BREACH OF CONTRACT; ACCOUNT RELATED-FAILURETO SUPERVISE; ACCOUNT RELATED-MARGIN CALLS; ACCOUNT RELATED-NEGLIGENCE


$38,239.82

AWARD AGAINST PARTY

10/23/2000

$11,904.83









End of Report

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