Is This The Chicago-Based Firm That Wrecked The Market On Thursday?

One persistent rumor is that the initial high-volume trades that caused the market to go haywire on Thursday, prompting the Crash of 2:45, originated somewhere in Chicago.

The unusual trading action in Procter & Gamble stock believed to be at the center of the market's most volatile moments on Thursday is thought to have originated from Terra Nova Financial, a Chicago-based provider of prime brokerage and clearing services, a person familiar with the situation has told TheStreet.

The exact circumstances of the trading action are still unclear. Terra Nova has broker-dealer status with both the Securities and Exchange Commission and the Financial Industry Regulatory Authority, or FINRA. One of the services it offers is sponsored direct market access, which it says allows clients to "establish a direct connection between their proprietary platforms and the Nasdaq or NYSE Arca execution systems," so the trade -- characterized as a large sell order in P&G -- could have come from one of the firm's clients with this type of access. Terra Nova's customers appear to be mostly hedge funds but it also provides clearing services for other broker-dealers and registered investment advisers.

Even if this is true, it's something of a sideshow to the real question that regulators and the exchanges need to be looking at. Some bad trades in PG (PG) shouldn't cause hundreds of securities to go nuts and trade at $.01. That the market was so brittle is the problem -- not what might have come out of one player in Chicago.

Management

Bernay Box
Chief Executive Officer

Bernay Box was appointed as Chief Executive Officer of Terra Nova Financial Group, Inc. in November 2009. He is the founder and managing partner of Bonanza Capital, Ltd, a private investment partnership. Based in Dallas, Texas, Bonanza is a small-cap investment fund managing money for high net worth and institutional clients. Mr. Box has more than 20 years of investment experience and is a graduate of Baylor University.

Raymond Burley
President and Chief Operating Officer

As the President and Chief Operating Officer of Terra Nova Financial, LLC, Raymond Burley draws on expertise in operations, financial reporting, compliance and audits to direct the delivery of Terra Nova’s exceptional back office functionality, including oversight of the design, implementation and maintenance of its proprietary clearing system. Mr. Burley has more than 20 years of experience in the financial services and brokerage industries, including roles as COO of full-service investment management and brokerage firm Romano Brothers & Company and COO and CFO of options market maker Cutler Group, LP. He holds a Bachelor of Arts degree from Western Illinois University and has earned FINRA Series 7, 24 and 27 accreditations.

Murrey Wanstrath, CPA, CFA
Chief Financial Officer and Treasurer

Murrey Wanstrath was named Chief Financial Officer and Treasurer of Terra Nova Financial Group, Inc. in April 2009 and has served as a Director of the Company since June 2006. Previously, Mr. Wanstrath acted as the Company’s interim Chief Financial Officer, Secretary and Treasurer. As Managing Director with Bonanza Capital from November 2005 to August 2008, he was responsible for identifying and executing investments in small cap public companies. Earlier in his career, Mr. Wanstrath held roles as Senior Equity Analyst for Hibernia Southcoast Capital and Manager in Ernst & Young’s transaction services group. Mr. Wanstrath is a Certified Public Accountant and has earned the Chartered Financial Analyst designation. He graduated from the University of Arkansas in Fayetteville with a Bachelor of Business Administration in Accounting.

http://www.tnfg.com/Company/Management.aspx

http://www.ecommerce-journal.com/node/25466

INRA fines Terra Nova Financial for making profits on soft dollar payments

November 24, 2009

FINRA fines Terra Nova Financial for making profits on soft dollar payments

Terra Nova Financial, LLC, of Chicago, has been fined by The Financial Industry Regulatory Authority today. The reason is that it made more than $1 million in improper soft dollar payments to or on behalf of five hedge fund managers, without following its own policies to ensure the payments were proper.

In addition, it was also charged with failing to properly supervise its soft dollar program, failing to perform corresponding supervisory procedures and failing to hold its business-related electronic instant messages. Terra Nova failed to timely respond to FINRA’s requests for productions of various documents, including emails and instant messages, in that way FINRA’s investigation delayed.

Also three individual of FINRA were sanctioned: Cleovan Jordan, the soft dollar administrator, was fined $20,000; Joshua Teuber, who supervised the soft dollar operation, was fined $15,000; David Persenaire, the firm’s Chief Compliance Officer until September 2009, was fined $10,000 FINRA also required Terra Nova to retain an independent cunsultant to review and enhance its systems, policies and procedures relating to its soft dollar operations.

FINRA found that Terra Nova set up soft dollar accounts for eight hedge funds to encourage the funds tu fulfill trades with the firm starting in 2004. Terra Nova gathered a portion of the commissions produced by the funds’ which trade in separate soft dollar accounts and from those accounts pain invoices from the fund managers or third parties for various sevices. It’s allowed to advisors to use soft dollars to pay for research or brokerage-related expenses by federal securities laws. But advisors may only use soft dollars to pay for personal expenses or other non-research or non-brokerage related expenses if those types of payments were previously disclosed to investors and if they are made in accordance with the terms of the fund’s organizing documents.

Terra Nova had to pay at least $1 million in expenses without receiving adequate documentation or conducting an adequate review to determine that the payments were for expenses authorized by fund documents. Those payments included:

• $13,700 for seven trips by a hedge fund manager to a “gentlemen’s club” in a two-week period.
• $65,000 for credit card bills that contained charges for meals, clothing, auto repairs and parking tickets. Terra Nova made other payments for limousines, airline tickets and hotel stays.
• $145,000 for salaries and benefits of non-clerical employees when the fund documents only permitted payments for “clerical staff salaries and benefits.”
• $389,000 in payments for “consulting fees related to research” when the invoices requesting the payments did not sufficiently identify who provided the research or what research was being provided.
• More than $470,000 to one manager based solely on the manager’s representation that soft dollars would be used to “fund expenses in conjunction with our documents” without any clear understanding of what expenses were being paid.

In settling this matter, Terra Nova, Jordan, Teuber and Persenaire either didn’t admit or didn’t deny the charges, but agreed to the entry of FINRA’s findings.

The exact circumstances of the trading action are still unclear. Terra Nova has broker-dealer status with both the SEC and the Financial Industry Regulatory Authority (FINRA). One service Terra offers is sponsored direct market access, which it says allows clients to "establish a direct connection between their proprietary platforms and the Nasdaq or NYSE Arca execution systems."

Terra Nova's customers appear to be mostly hedge funds but it also provides clearing services for other broker-dealers and registered investment advisers. Something regulators and the exchanges need to be looking at.

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The Financial Industry Regulatory Authority is the largest nongovernmental regulator of US securities firms. Does FINRA have firms registered as "acting as intermediaries" between Terra and institutional investors to facilitate investments?

One of the services Terra offers is sponsored direct market access, which it says allows clients to "establish a direct connection between their proprietary platforms and the Nasdaq or NYSE Arca execution systems." Ergo, the errant trade -- characterized as a large sell order in P&G --could have come from one of the firm's clients with that type of access.

If licensed financiers facilitated this scam---and ARE NOT registered, that could mean loss of license....or worse.

LETS ASK FINRA
Financial Industry Regulatory Authority (nongovernment regulator of US securities firms)
CALL (866) 776-0800

SECURITIES/EXCHANGE COMMISSION
EMAIL enforcement@SEC.gov

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REFERENCE We need to know whether Chicago politicians, and financial firms are registered as "intermediaries to facilitate investments." And whether registered firms might share a similar US address.

Financial operatives might be listed with offshore addresses at infamous money laundering havens including: Lebanon, Liechtenstein, Russia, India, Israel, Panama, the Bahamas, the Cayman Islands, the Cook Islands, Dominica, the Marshall Islands, Nauru, Niue, Panama, the Philippines, St. Kitts and the Grenadines, Cyprus, Gibraltar, Monaco, Antigua, Tortola, BVI.

Terra Nova Financial Group (OTCBB: TNFG) is a small (and slowly dying) player in direct access trading provider market. Most customers are individual customers or small funds who want fast direct trade executions. That they are located in Chicago is incidental to the HFT systems going haywire.

Terra Nova Financial Group, Inc., 100 South Wacker Dr., Ste 1550, Chicago, IL 60606
2009: Sales: $28M (-26%), Income: (-$13M), Employees: 65
Rush Financial Technologies wants to serve investors in a hurry to do some stock trading. The company was founded in the early 1990s as a traditional retail brokerage offering insurance and other investment products. Today, the company has shifted its attention toward its proprietary software for direct-access trading. The company's technology platform provides real-time quotes and trading tools for active online investors, semi-professional traders, and institutional portfolio managers. RushTrade Securities, the company's broker/dealer subsidiary, handles online trading for more than 2,000 customer accounts.

CME Group, based in Chicago and operating Chicago Mercantile Exchange and the Chicago Board of Trade, denies any improper trades originated on its exchanges:

CME Group Inc., which operates the Chicago Mercantile Exchange and the Chicago Board of Trade, said its markets functioned properly on Thursday during Wall Street's wild swing, and that it was not canceling any trades.
The company said it saw "significant market activity due to global macroeconomic conditions" on Thursday.
Some trades on Nasdaq and the New York Stock Exchange's electronic platform were canceled. But CME Group spokeswoman Anita Liskey said on Friday that none of Thursday's trades would be canceled, because there were no abnormalities on its exchanges. .....

The CBOE Stock Exchange invoked a government-sanctioned rule to unwind 18 trades made in the stock of Accenture PLC that all took place within a few minutes Thursday afternoon at the price of a penny per share.

The "market" went down big because of insufficient liquidity in certain Dow Industrials / S&P 500 stocks which traded "away from the primary exchange" and took down the indices and triggered program trades to cascade all the way down, including huge number of deep-out-of-the-money options (which will still need to be sorted out, so expect volatility in next few days).

Index ETFs and options are interdependent and "contagious". It's not so much different than Plunge Protection Team supporting the market through massive purchases of options in select Dow or S&P stocks, only the trip down cascades with much higher velocity and requires less (and less) money to continue in the same direction.

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