← Broker database 2025-02-01
Apex Clearing Fined $3.2 Million for Fully Paid Securities Lending Violations
According to FINRA, Apex Clearing Corporation has been fined $3.2 million for violations related to its fully paid securities lending program. This is the first time FINRA has charged a firm with violating FINRA Rule 4330, which establishes permissible use of customers' securities to ensure customer protection.
Apex operated a fully paid securities lending program for introducing firms, which in turn offered their customers the opportunity to participate. From January 2019 through June 2023, Apex entered into securities loans with introduced customers without having reasonable grounds to believe that the loans were appropriate for those customers—because those customers did not receive any loan fee for lending their shares.
In fully paid securities lending, a broker-dealer borrows a customer's securities and typically lends them to a third party in exchange for a daily borrowing fee, which is shared among the clearing firm, the introducing firm, and the customer. However, in this case, customers were exposed to significant risks—including potentially higher taxation, loss of SIPC protection during loans, and loss of voting rights—without receiving any compensation.
The firm also distributed documents to introducing broker-dealers that were sent to over 5 million retail investors containing misrepresentations about compensation investors would receive. Four introducing firms enrolled approximately 5 million investors, with approximately 17 percent having securities borrowed by Apex.
FINRA previously ordered four introducing firms whose customers participated in Apex's program to pay a combined $2.6 million, including over $1 million in restitution to harmed customers.
What Investors Can Learn: Before enrolling in any securities lending program, carefully review the terms to understand what compensation you will receive and what risks you are assuming. If a program exposes you to risks without providing corresponding benefits, it may not be appropriate for you.