UBS fined in U.S. over improper short sales
Jonathan Stempel, 25 October 2011
In the largest penalty of its type, Swiss bank UBS AG was fined $12 million by a U.S. brokerage regulator over its “systemic” failure to properly handle millions of short-sale orders.
The Financial Industry Regulatory Authority said violations by the bank’s UBS Securities LLC broker-dealer unit caused the orders to be mismarked or filled without reasonable grounds to believe the underlying securities could be located.
In short sales, investors sell securities they do not own, hoping the prices will fall so they can repurchase the securities later at the lower price, repay the lender and pocket the difference as profit. Regulators fear that abuses can distort markets, and accelerate declines in share prices.
FINRA said UBS’s violations lasted from 2005 to 2010, and that the bank likely processed “tens of millions” of short sale orders for equities and exchange-traded funds improperly.
Many problems were not detected until FINRA’s probe caused UBS to review its systems, the brokerage regulator said.
“Broad, systemic failures is the best way to describe it,” Brad Bennett, FINRA’s chief of enforcement, said in an interview. “The fine reflects the gaps in the system that we found. We didn’t identify any specific delivery failures, but that could means the bank just got lucky.”
FINRA said UBS has made changes to systems and procedures that were designed to prevent a recurrence of the violations. The bank did not admit wrongdoing in agreeing to settle, and also accepted a censure.
