A firm specializing in execution services for institutional and broker-dealer clients settled FINRA charges for short sales ("Regulation SHO") and FINRA trade reporting rule violations.
In a Letter of Acceptance, Waiver and Consent ("AWC"), FINRA found that, between April 2016 and September 2018, the firm failed to:
(i) obtain locates in connection with short sale transactions, in violation of Rule 203(b)(1) ("Borrowing and delivery requirements") of Regulation SHO and FINRA Rule 2010 ("Commercial Honor and Trade Principles);
(ii) report short sales to the FINRA/NYSE Trade Reporting Facility with the required short sale indicators, in violation of FINRA Rules 6182 ("Trade Reporting") and 2010;
(iii) establish, maintain and enforce written procedures to prevent the execution of short sale transactions during a circuit breaker, in violation of Rule 201(b)(1) ("Circuit Breaker") of Regulation SHO and FINRA Rules 3110 ("Supervision") and 2010;
(iv) correctly report net trades with a W modifier to multiple reporting facilities, in violation of FINRA Rules 6380A(a), 6380B(a) and 6622(a) ("Transaction Reporting"); and
(v) establish a supervisory system, including written supervisory procedures, designed to achieve compliance with local requirements of Regulation SHO and the trade reporting of short sales, net trades and trade modifiers, in violation of FINRA Rules 3110(a) and 2010.
To settle the charges, the firm agreed to (i) a censure and (ii) a $100,000 fine. The AWC states that the firm may attach a corrective action statement to the AWC as a demonstration of corrective steps taken to prevent any future misconduct.
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