A broker-dealer agreed to pay $215,000 to settle FINRA charges for failing to comply with close-out obligations in connection with delivery fails resulting from sales of equity securities, as required pursuant to Rule 204 of Regulation SHO. Rule 204 requires that "fails resulting from sales of an equity security be 'closed-out' by purchasing or borrowing securities of like kind and quantity" within certain prescribed timelines based on the type of trading activity related to the sale.

According to the Letter of Acceptance, Waiver, and Consent, RBC Capital Markets, LLC did not close-out fail-to-deliver positions in a timely and proper manner due to, among other things, failing to allocate responsibility for fail-to-deliver positions to its corresponding broker-dealers, and for double counting when "calculating and claiming [c]redit towards a close-out obligation."

Commentary / Steven Lofchie

The required procedures to comply with Regulation SHO close-outs are remarkably complicated and difficult to get right. That said, Regulation SHO has been constantly on the SEC's focus list. It behooves firms to periodically recheck their procedures and to have their implementation audited by more than one person or by an outside party.

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