NYSE Regulation fines UBS $49.5 million

NEW YORK – The New York Stock Exchange regulatory arm (NYSE Regulation) has slapped a $49.5 million fine on Swiss Bank UBS for failure to supervise deceptive market-timing activities engaged in by its brokers, failure to establish appropriate procedures for supervision and control, and failure to maintain adequate books and records.

The regulator said half the penalty would be payable to the State of New Jersey. Of the remaining $24.75 million, $18 million would be placed in a distribution fund to compensate injured customers of UBS who, during the relevant period, invested long-term in the same mutual funds that were the subject of market-timing; a $5.75 million penalty will be paid to the NYSE; and credit was given for $1 million being separately paid to the State of Connecticut as part payment in a matter relating to improper market-timing.

Any remaining amount in the distribution fund after compensating UBS customers will then be distributed to other investors who were not UBS customers but who invested in these affected mutual funds. Any unused portion will revert to NYSE Regulation after three years.

"When a brokerage firm permits a hedge fund or any other market participant to trade deceptively and gain an unfair advantage over other investors, it has violated the trust that forms the foundation of our capital markets," says Richard Ketchum, chief regulatory officer, New York Stock Exchange. "UBS's failure to have adequate controls in place led to this unfortunate occurrence."

"A broker-dealer must respond swiftly and effectively when misconduct is detected that places any of its customers at risk," says Susan Merrill, chief of enforcement, NYSE Regulation. "Our order is focused upon getting money back into the hands of injured investors."

Beginning in January 2000 and continuing through December 2002, brokers in at least seven UBS branch offices engaged in deceptive market-timing to benefit their customers, typically hedge funds, to the detriment of the affected mutual funds and their non-market-timing shareholders. The brokers used deceptive trading practices to conceal their identities, and those of their customers, to enable them to trade in mutual funds that sought to limit or curtail their market-timing.