A financial services firm agreed to settle FINRA charges for Regulation SHO (i.e., short sale rule) violations.

According to the Letter of Acceptance, Waiver and Consent, the firm, among other things:

  • failed to close out certain "fail-to-deliver" ("FTD") positions from short sales, as required by Rule 204(a), in a timely manner;
  • improperly routed and executed short sale orders by failing first to borrow or to arrange to borrow securities, as required by Rule 204(b);
  • neglected to provide notice - as required by Rule 204(c) - to other broker-dealers for whom the firm cleared and settled trades that their short sale orders were subject to the pre-borrow requirement; and
  • failed to sufficiently supervise short sales (i.e., the firm's supervisory systems were not adequately designed to achieve compliance with Regulation SHO).

To settle the charges, the firm agreed to (i) pay $2 million and (ii) hire an independent consultant to undertake a review of firm policies related to Regulation SHO.

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