← Broker database 2024-06-11
GlobaLink Securities Ordered to Pay Nearly $400,000 in Customer Restitution for Unfair Bond Markups
According to FINRA, GlobaLink Securities, Inc. was censured, fined $200,000, and ordered to pay $397,862.20 in restitution to customers for charging unfair markups and markdowns in corporate bond transactions and failing to achieve best execution.
The firm charged markups and markdowns ranging from 2.30 percent to as high as 9.34 percent on corporate bond transactions. These excessive charges were particularly problematic because the firm did not incur the costs of executing the trades—its clearing firm handled execution and charged separate markups and markdowns for those services. Customers were essentially paying twice, first to the clearing firm and then again to GlobaLink.
FINRA Rule 2121 requires that markups and markdowns be fair and reasonable, considering all relevant factors. A markup approaching 10 percent on a bond transaction is rarely justifiable, especially when the firm incurs minimal execution costs. The cumulative impact on customers was substantial: $397,862.20 in unfair charges that directly reduced investment returns.
The firm also violated its best execution obligations under FINRA Rule 5310. GlobaLink routed all customer fixed-income transactions to its clearing firm without performing any diligence to determine whether it was buying or selling bonds in the best market. The firm made no effort to ensure prices were as favorable to customers as possible under prevailing market conditions. This represented a complete failure of the duty owed to customers.
Compounding these violations, the firm's supervisory system was fundamentally flawed. Its written procedures allowed markups and markdowns up to a certain percentage without considering whether that cap was reasonable for corporate bonds. The firm had no procedures to identify exceptions or evaluate whether charges below the cap were reasonable under the circumstances. For best execution, the firm lacked any reasonable system for supervising execution quality and failed to designate persons responsible for compliance.
For bond investors, this case underscores the importance of understanding the fees you pay. Bond markups and markdowns are often hidden in the price rather than disclosed as separate charges, making them harder to detect than stock commissions. Investors should ask their brokers about markups on bond transactions and compare prices to recent market trades. The requirement that GlobaLink retain an independent consultant to review its fixed-income trading practices demonstrates the seriousness of these violations.