UBS comes up short; fined $12 million by Finra for ‘systemic supervisory failure’
Finextra, 26 October 2011
The Financial Industry Regulatory Authority (Finra) has fined UBS Securities $12 million for failing to properly supervise short sales of securities.
The Swiss bank’s US brokerage unit violated Regulation SHO, which 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, says Finra.
The rules require firms to obtain and document this “locate” information before the short sale occurs to help cut the number of potential failures to deliver.
However, UBS’ Reg SHO supervisory system for locating and the marking sale orders was “significantly flawed and resulted in a systemic supervisory failure that contributed to serious Reg SHO failures across its equities trading business”.
The brokerage placed millions of short sale orders to the market without locates, including in securities that were known to be hard to borrow. The violations extended to “numerous trading systems, desks, accounts and strategies, and impacted UBS’ technology, operations, and supervisory systems and procedures”.
In addition, UBS mismarked millions of sale orders in its trading systems. Many of these were short sales that were tagged as “long”. Finra also found “significant deficiencies” related to aggregation units.
