Broker-Dealer Settles Charges for Overreporting Short Interest Positions

A broker-dealer settled FINRA charges for overreporting short interest positions and for related supervisory failures.

According to a Letter of Acceptance, Waiver and, Consent, FINRA found that the broker-dealer erroneously reported non-reportable short positions in its short interest reports. The short positions were not reportable because "they did not result from 'short sales' as defined in Rule 200(a) of Regulation SHO and were not transactions that were marked long due to the firm's or the customer's net long position at the time of the transaction." Additionally, the broker-dealer failed to maintain a process to identify instances where short interest reports included non-reportable positions and a process to identify potential inaccurate reporting.

As a result, FINRA concluded that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110 ("Supervision") and Rule 4560 ("Short-Interest Reporting"). To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $300,000.