A broker-dealer (the "firm") settled FINRA, NYSE and NYSE American charges for violations of short sale close out and "penalty box" provisions, which prohibit the short sale of securities when Reg. SHO's close out requirement is unsatisfied and the broker-dealer has not borrowed or arranged to borrow the securities.
In separate Letters of Acceptance, Waiver and Consent ("AWC"), FINRA, NYSE and NYSE American found that in attempting to allocate fail to deliver positions to two introducing broker-dealers ("IBs") responsible for the positions, the firm's procedures for allocating fails was inadequate, as was the notice that it provided to the IBs of their obligation to buy in the relevant securities. Further, the firm did not cause all required buy-ins and did not enforce the required pre-borrow or penalty box requirements.
Supervisory deficiencies were also identified because (i) the firm "did not conduct a reasonable supervisory review" for assessing whether its email notifications were compliant and (ii) the firm's buy-in supervisory procedures did not include a description of its checklist documentation process for ensuring compliance with Reg. SHO Rule 204(a).
FINRA, NYSE and NYSE American determined that the firm violated Reg. SHO Rule 204 ("Close-out requirement"), FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110(a) ("Supervisory System") and 3110(b) ("Written Procedures"); NASD Rules 3010(a) and 3010(b); NYSE Rules 342 ("Compliance Supervisors") and 3110 ("Supervision"); and NYSE American Rule 320 ("Offices-Approval, Supervision and Control").
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $300,000 total fine, to be allocated evenly among FINRA, NYSE and NYSE American.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.