According to FINRA, UBS Financial Services Inc. was censured, fined $500,000, ordered to pay $343,914.66 in restitution, and required to disgorge $2,645,537 in commissions for failing to properly supervise short-term trading of syndicate preferred stocks.

The firm failed to establish a supervisory system reasonably designed to assess whether representatives recommended unsuitable short-term trades of syndicate preferred stocks to retail customers. The firm had no written procedures providing guidance specific to the suitability of holding periods for syndicate preferred stock purchases, and procedures did not identify any concerns with short-term trading of these positions.

The firm's electronic surveillance system had parameters that were unduly narrow, resulting in a failure to review a substantial amount of short-term syndicate preferred stock trading. Only 40 preferred stock positions appeared on the firm's reports. Even when short-term trades appeared on reports, the firm did not take reasonable action to investigate potentially unsuitable trades.

Representatives or representative teams recommended syndicate preferred stock purchases that were then sold within 180 days or less, resulting in realized losses for customers even after including income earned on the positions. The firm earned $2,645,537 in selling concessions from the syndicate purchases and at least $343,914 in sales commissions from the subsequent sales.

This case illustrates a potential conflict of interest in syndicate preferred stock trading. The firm captured commissions on both ends of transactions while customers experienced losses. Investors should be cautious of frequent trading recommendations in preferred stocks, which are generally designed to be longer-term income investments rather than short-term trading vehicles.