October 26, 2011 Comments (0) Blog, Securities Fraud

UBS Fined $12 million by FINRA for Regulation SHO violations and Failure to Supervise

(Last Updated On: July 17, 2015)

The Financial Industry Regulatory Authority (FINRA) recently said in a release that “it has fined UBS Securities LLC $12 million for violating Regulation SHO (Reg SHO) and failing to properly supervise short sales of securities.” UBS has “neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.”

FINRA alleges that these violations caused “millions of short sale orders [to be] mismarked and/or placed to the market without reasonable grounds to believe that the securities could be borrowed and delivered.”

Regulation SHO “requires a broker-dealer to have reasonable grounds to believe that the security could be borrowed and available for delivery before accepting or effecting a short sale order.” Further firms are required “to obtain and document this “locate” information before the short sale occurs reduces the number of potential failures to deliver in equity securities.”

The charges and resulting fine show that FINRA does not believe that UBS fulfilled their obligation to the regulations or reasonably supervised their short sales to ensure Regulation SHO was followed. FINRA’s investigation found that “UBS placed millions of short sale orders to the market without locates, including in securities that were known to be hard to borrow.” Further FINRA found “that UBS mismarked millions of sale orders in its trading systems.” And finally FINRA stated that, “UBS had significant deficiencies related to its aggregation units that may have contributed to additional significant order-marking and locate violations.”

FINRA executive Brad Bennett emphasized that, “Firms must ensure their trading and supervisory systems are designed to prevent the release of short sale orders without valid locates, and properly mark sale orders, in order to prevent potentially abusive naked short selling. The duration, scope and volume of UBS’ locate and order-marking violations created a potential for harm to the integrity of the market.”

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