FINRA Fines Firm $650K for Compliance Failures that Permitted Correspondent Firm to Enter Improper Short Sales

FINRA News Release

March 22, 2011

FINRA announced a $650K fine against a Texas-based clearing broker dealer for deficiencies in due diligence, risk assessment, and written supervisory procedures that led to one of its correspondent firms creating excessive risk through the entry of improper short sales. The action alleges that the clearing firm allowed the correspondent firm to establish a 2.5 million net short position in a security, which it was unable to meet and which left the clearing firm with an unsecured debit balance of $6.3 million. In connection with the action, FINRA required the clearing firm to designate a risk management officer for its correspondent clearing business, and expelled the correspondent clearing firm.

Cross References

FINRA action against Southwest Securities, Inc., No. 20090196601

FINRA action against Cutler Securities, Inc, No. 20090191566

FINRA Rule 2010

NASD Rules 2110, 3010