Broker-Dealer Settles FINRA Charges for Short Sale Reporting Violations

A broker-dealer settled FINRA charges for (i) failing to report the short sale indicator for transactions in NMS and OTC equity securities, and (ii) for related supervisory failures.

In a Letter of Acceptance, Waiver, and Consent, FINRA found that a programming error in a recently implemented update to the firm's trade reporting logic caused the broker-dealer to erroneously exclude the short sale indicator when reporting short sale transactions to both the NYSE Trade Reporting Facility and the OTC Trade Reporting Facility.

In addition, FINRA found that the broker-dealer failed to maintain supervisory systems reasonably designed to achieve compliance with the applicable federal securities laws. FINRA stated that the broker-dealer conducted supervisory reviews of its equity trade reporting, but the supervisory systems in place were not designed to detect the absence of a short sale indicator.

As a result, FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110 ("Supervision"), Rule 6182 ("Trade Reporting Short Sales") and Rule 6624 ("Trade Reporting Short Sales of OTC and Restricted Equities").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $250,000 civil monetary penalty.