A broker-dealer agreed to pay $5.5 million to settle FINRA charges for failure to implement adequate supervisory procedures and safeguards with regard to the short sales of equity securities under Regulation SHO.
In the Letter of Acceptance, Waiver and Consent, FINRA alleged that Interactive Brokers LLC ("Interactive"), over the span of roughly three years, (i) neglected to close out open fail-to-deliver ("FTD") positions in a timely and proper manner on over 2,000 occasions, (ii) engaged in short sales in equity securities without first borrowing or arranging to borrow the securities, and (iii) failed to inform certain customers that their short sale orders were subject to the pre-borrow restriction due to an open FTD in the security.
Additionally, FINRA alleged that Interactive failed to ensure that its automated monitoring system for securities was not enforcing short sale price restrictions under SEC Rule 201. Accordingly, Interactive's automated system allowed for the execution or display of over 4,700 short sale orders in covered securities at a price less than or equal to the national best bid. Although Interactive knew in 2013 that the responsible individual was not ensuring the firm's compliance with Rule 201, Interactive failed to take any corrective action towards the individual until January 2014 or revise its supervisory systems until mid-2015.
Interactive neither admitted to nor denied the charges.
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