HSBC pays $695,000 in fines, restitution over CMOs

NEW YORK, Aug 19 (BestGrowthStock) – Wall Street regulator FINRA
said on Thursday it fined the U.S. brokerage arm of HSBC
(HSBA.L: ) for recommending some highly complex mortgage
securities to dozens of small investors.

The $375,000 fine is a small one for the British banking
giant, which neither admitted nor denied the charges. Still the
action is the latest in an ongoing effort by FINRA to target
sales of exotic investments to people who may not fully
understand the risks of what they are buying and do not have
the wherewithal to withstand potential losses.

In this case, six HSBC brokers sold something called
“inverse floating rate Collateralized Mortgage Obligations.”
The bank failed to supervise the suitability of 43 transactions
or explain the risks to customers.

The Financial Industry Regulatory Authority said 25 of the
HSBC sales exceeded $100,000, and five of these resulted in
$320,000 of losses. HSBC made full restitution to these
customers.

FINRA says HSBC failed to train its brokers or to fully
explain the risks with its customers.

CMOs are pools of mortgage-backed debt issued in a series
of tranches with varying levels of risk, yields and maturities.
CMOs plunged in value during the 2008 credit crisis, when the
underlying mortgages tumbled in value and the CMOs themselves
became impossible to trade.

An “inverse floater” is a particularly complex variety,
paying an adjustable rate that moves in the opposite direction
of interest rate benchmarks, such as the London interbank
offered rate (LIBOR).
(Reporting by Joseph A. Giannone; Editing by Richard Chang)

HSBC pays $695,000 in fines, restitution over CMOs