According to FINRA, TD Ameritrade Clearing, Inc. was censured and fined $500,000 for sending confirmations to customers that failed to disclose required information about callable securities.

When customers purchased ETNs and preferred securities, the confirmations failed to disclose that these securities were subject to redemption. For ETNs specifically, the confirmations also failed to disclose that redemption before maturity could affect the securities' yields. These disclosures are required because call features and early redemption can significantly impact investment returns.

Instead of providing specific disclosure about the callable nature of the securities purchased, the firm relied upon general language within confirmations stating that if the transaction involved callable securities, the call features could affect yield and that complete information would be provided upon request. This generic disclosure failed to alert customers that the specific securities they purchased were in fact callable.

The firm ultimately self-reported these failures to FINRA and voluntarily employed corrective action, including notifying customers that the securities in question were callable and, with respect to ETNs, that early redemption could affect yields. For investors, this case emphasizes the importance of understanding the terms of securities being purchased, particularly complex products like ETNs and preferred securities. Call provisions can significantly impact expected returns, and investors should seek out information about these features before investing. While transaction confirmations should provide this information, investors should also review prospectuses and other offering documents to fully understand product features and risks. The self-reporting and voluntary corrective action by TD Ameritrade demonstrates good faith in addressing compliance failures.