Fidelity Brokerage Services LLC Censured and Fined 2023

Fidelity Brokerage Services LLC (FBS) has been censured and fined multiple times: 

• December 18, 2015: FBS agreed to a censure, $500,000 fine, and reimbursement to customers for losses.
• April 30, 2015: FINRA censured FBS and fined the firm $350,000 for overcharging 20,663 customer accounts.
• May 23, 2017: FINRA issued an AWC to FBS, which included a censure and $45,000 fine.
• October 02, 2023 : FBS fined the Financial Industry Regulatory Authority and the Massachusetts Securities Division for “rubber-stamping” options trading applications. The Massachusetts Securities Division fined Fidelity $750,000, while FINRA hit the firm with a $900,000 fine.

FBS ( Fidelity Brokerage Services LLC ) is a registered broker-dealer with the U.S. Securities and Exchange Commission. It is one of the largest no-commission brokers, making money by charging clients fees for account management and other services.

Fidelity Brokerage Services LLC October 2, 2023

Fidelity Brokerage Services LLC (CRD #7784, Smithfield, Rhode Island) October 2, 2023 – A Letter of Acceptance, Waiver and Consent (AWC) was issued in which the firm was censured and fined $900,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it did not have a system reasonably designed to review and approve options applications.

The findings stated that the firm ( Fidelity Brokerage Services LLC ) used an automated, electronic system to screen customers’ online applications to trade options, after which a principal at the firm reviewed and then approved or disapproved customer accounts for options trading. However, the automated system considered only information that a customer provided in his or her most recent options trading application (such as his or her investment experience, income, liquid net worth, and net worth), and did not compare such information to other information previously provided to the firm.

In addition, the firm ( Fidelity Brokerage Services LLC ) required that all customers seeking approval to trade options have at least a year of investment experience and the firm’s policies only considered experience after a customer was 18 years old. As such, any customer under the age of 19 who applied for options trading could not have attained the year of investment experience that the firm required for its customers to trade options. Nonetheless, the firm’s automated system promoted applications for batch review by a principal based on customers’ representations that they had at least a year of investment experience—even if the customers were younger than 19 years old.

The firm’s process for principal review of options applications was also flawed. Principal reviewers were not required to consider if a customer had submitted multiple applications. The firm’s ( Fidelity Brokerage Services LLC ) system also did not require comparison of the information provided by a customer on his or her most recent options application with what the customer had previously represented to the firm.

The findings also stated that the firm approved certain customers for options trading who did not satisfy the firm’s eligibility criteria or whose accounts contained red flags that the requested level of options trading was not appropriate for them. Of such customers, only a small number actually traded options at levels for which they were not eligible under the firm’s eligibility criteria. (FINRA Case #2021071987001)