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FINRA FINES UBS SECURITIES $12 MILLION FOR REGULATORY VIOLATIONS AND SUPERVISORY FAILURES RELATING TO SHORT SALE TRANSACTIONS

The Financial Industry Regulatory Authority (FINRA) has fined UBS Securities LLC $12 million for violation of Regulation SHO and its failure to adequately supervise its brokers regarding short sale transactions. A short sale involves the sale of a security the seller does not presently own. When delivery of the security is required, the seller then purchases the security and makes the delivery. Reg. SHO requires a brokerage firm to have a reasonable basis to believe the security will be available for purchase by the seller before the firm accepts a short sale order. Requiring firms to document this “locate” information prior to entry of the short sale reduces the chance that delivery of the security will fail. Reg. SHO also requires that all equity securities sales be marked as long or short.

FINRA found significant violations of Reg. SHO by UBS. UBS placed millions of short sale orders without documenting the locate information, including in securities that were known to be difficult to obtain. In addition, UBS mismarked millions of short sale order tickets as “long.” UBS consented to the entry of FINRA’s findings without admitting or denying the charges.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “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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