Robert W. Baird & Co. Incorporated (CRD #8158, Milwaukee, Wisconsin) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $900,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, including written policies and procedures and written supervisory policies and procedures, in regard to Regulation SHO.
The findings stated that Baird’s order entry systems did not prevent the release of significant numbers of proprietary, institutional, retail and employee short sale orders for execution without valid locates, in violation of Regulation SHO. The findings also stated that Baird’s non-compliance with locate requirements was not corrected in a timely fashion because the firm’s post-trade review was not reasonable for the purpose of determining, retroactively, whether locates had been properly obtained and granted. The findings also stated Baird’s Stock Loan Department systematically failed to provide locates and/ or properly document locates for short sale orders. The findings also included that Baird did not allocate adequate resources, including Stock Loan personnel, to the process of granting and documenting locates, and failed to adequately train Stock Loan personnel regarding the requirements of Regulation SHO. FINRA found that as a result of Baird’s order entry system and Stock Loan deficiencies, Baird released hundreds of short sale orders for execution without obtaining and/or documenting locates. FINRA also found that additional locate violations occurred because Baird misapplied the bona-fide market maker exception to the locate requirement in connection with customer facilitation, non-bona fide market making short sales and proprietary hedge short sales. In addition, FINRA found that Baird failed to disclose its market maker status on approximately 693 equity research reports involving 360 different securities in which it was a market maker.
Moreover, FINRA found that Baird’s Regulation SHO violations were extensive due to the patchwork of systems, policies, and procedures implemented by the Firm in 2005 that contained multiple gaps and in certain instances contained incorrect instructions for compliance with Regulation SHO; specifically, the firm failed to designate effective compliance personnel as responsible for the firm’s overall compliance with Regulation SHO. Furthermore, FINRA found that the firm failed to allocate adequate resources and Stock Loan personnel to the process of granting and documenting locates, and failed to adequately train Stock Loan personnel regarding the requirements of Regulation SHO including the documentation of locate requests and approvals. Additionally, the firm failed to establish and maintain adequate written policies and procedures and written supervisory policies and procedures reasonably designed to achieve overall compliance with Regulation SHO, compliance with the applicable securities laws in connection with becoming a registered market maker in securities, and compliance with the applicable securities laws in connection with the use of the market maker exception to the locate requirement. Baird further failed to implement reasonable procedures relating to the inclusion of research report disclosures concerning market making activities.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
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