A broker-dealer settled FINRA charges for violating certain rules on short sales practices and related supervisory failures. The broker-dealer self-reported Regulation SHO concerns arising from system coding errors that resulted in its miscalculating the supply of available securities for approximately two years. Upon discovery of the issues, the broker-dealer halted relevant trading the next day and resumed trading in the relevant securities upon fixing the Regulation SHO issues.
FINRA found that the broker-dealer violated <Rule 203(b)(1) of Regulation SHO ("Borrowing and Delivery Requirements") by executing short sale transactions without (i) producing a bona-fide arrangement to borrow securities or (ii) having "reasonable grounds" to believe that the securities could be borrowed by the delivery date. Additionally, FINRA found that the broker-dealer violated FINRA Rule 3110 ("Supervision") by failing to implement an adequate supervisory system and supervisory procedures that would have tested the quality and accuracy of the systems that the firm used to comply with Regulation SHO.
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $225,000 fine.
Originally published June 15, 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
