Take a peek behind the flashing lights and rising graphs of Wall Street and you’ll find an ecosystem of brokers, traders, and clearing houses. These entities are the invisible gears that keep the hustle and bustle of Wall Street constantly in motion. Among these gears, Axos Clearing, a subsidiary of Axos Financial, plays a major role. However, despite the firm’s vital role, it has recently gained attention for all the wrong reasons.
The Role of Axos Clearing within the Financial Machinery
Axos Clearing is a clearing house and an investment adviser, registered with both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). Although it does not interact directly with investors, its actions can still greatly impact their gains and losses.
The firm operates under a handful of names, including Axos Advisor Services, Legent Clearing, Legent Clearing Corp, KP Clearing, and COR Clearing. Primarily, its objective is to facilitate securities transactions for brokers. This seems straightforward, but even small missteps can cause ripples that directly affect the wallets of investors.
Unsettling Regulatory Actions
A quick search using Axos Clearing’s CRD number reveals a history of 13 disclosures with the most recent stepping into serious territory. In 2019, the firm consented to a hefty $250,000 fine based on allegations of failing to adequately disclose potential interest rates for margin accounts.
Now, if you’re a financial whizz, terms like ‘margin accounts’ and ‘interest rates’ might not phase you. But in simple-speak, these are accounts where investors use borrowed money to buy securities. While these present significant rewards, they also hold substantial risks. Here’s the catch: the loans on these accounts come with interest. This interest can create a conflict of interest for the investor, especially when the firm fails to provide full transparency about interest rates.
Previous Violations and Fee Disclosures
Peel back the layers, and you find an earlier, similar violation in 2017 when COR Clearing LLC, a name utilized by Axos Clearing, was charged with a violation of Regulation SHO. This regulation mandates brokerage firms to demonstrate a “reasonable belief” that they can fulfill short-selling orders. The result led to the firm consenting to a censure and a $35,000 fine just four years after settling similar allegations with a $1 million fine.
Apart from regulatory actions, Axos discloses that they typically accrue fees based on transactions. In their Customer Relationship Summary form, they clarify that these fees are generally paid by investment advisors, but could also be accrued from securities purchases and sales, wire transfers, account transfers, stock organizations, account maintenance, margin interest, and sweep fees.
The Impact on Investors
Every revelation about regulatory violations and opaque fee structures has detrimental consequences on investor trust. It is, thus, essential for investors to thoroughly understand their interactions with such financial entities.
For those who believe they have fallen victim to Axos’ actions, especially in relation to undisclosed margin account interests, seeking out legal advice from a securities attorney may be their best course of action. As for Axos Clearing, these costly missteps underscore the importance of transparency and adherence to regulations—essential factors that ultimately win investor trust.