Broker-Dealer Settles FINRA Charges for Violations of Short Sale Close-Out Requirements

A broker-dealer settled FINRA charges for failing to timely acquire shares of a security to close out "fail-to-deliver" ("FTD") positions in compliance with Regulation SHO.

FINRA found that on numerous occasions the broker-dealer failed to borrow, recall or buy-in shares to close out FTDs after the broker-dealer's automated FTD identification system failed to acquire the shares to close out the FTD. In addition, FINRA found that on certain occasions the broker-dealer (i) failed to place a security and failed to obtain a close out in the "penalty box," and (ii) did not tell the appropriate parties it had a position that had not been closed out. FINRA also concluded that the broker-dealer failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with Regulation SHO's close-out requirements.

FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110 ("Supervision") and Rule 204 of Regulation SHO ("Close-out requirement"). To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $900,000 (of which $450,000 will go to FINRA), and (iii) undertakings to improve compliance with Regulation SHO. The broker-dealer settled FINRA's charges simultaneously with parallel charges brought forth by other exchanges.