August 19, 2022

Broker-Dealer Settles FINRA Charges for Short Sale Failures

A broker-dealer settled FINRA charges for (i) accepting short sale orders without first fulfilling Regulation SHO's ("Reg. SHO") locate requirement, (ii) reporting trades with an inaccurate capacity symbol and (iii) related supervisory failures.

In a Letter of Acceptance, Waiver, and Consent, FINRA found that the broker-dealer allowed clients to submit short selling orders without first securing an arrangement to borrow the necessary shares. FINRA determined that the error was the result of an incorrect configuration of its delivery-versus-payment client accounts and that the broker-dealer's locate review process did not include reviewing the accounts. Additionally, FINRA found that the broker-dealer incorrectly coded its order management system and, as a result, reported transactions to FINRA's Trade Reporting Facility with an incorrect capacity symbol. FINRA also found that the broker-dealer maintained insufficient supervisory policies.

As a result, FINRA determined that the broker-dealer violated Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110 ("Supervision"), Rule 7230A ("Trade Report Input") and Reg. SHO Rule 203(b)(1) ("Borrowing and delivery requirements").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $100,000 civil monetary penalty.

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