dcubberley, 27 October 2011
UBS AG, Switzerland’s biggest bank, will pay $12 million to resolve Financial Industry Regulatory Authority claims that a brokerage unit allowed millions of short-sale orders to be placed without reasonable grounds to believe that the securities could be delivered.
The supervisory system for locating and marking orders at UBS Securities LLC was “significantly flawed” and contributed to violations across its equities-trading business, Washington- based Finra said in a statement today. The company’s framework wasn’t designed for regulatory compliance until at least 2009, the industry-funded brokerage watchdog said.
In a short sale, an investor sells a security it doesn’t own, betting the price will decline before it’s time to deliver the shares. Under a rule known as Reg SHO, brokers can only accept short-sale orders when they can reasonably ensure the shares needed to cover the bets will be available to the investor at the time of delivery.
“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,” Brad Bennett, Finra’s head of enforcement, said in the regulator’s statement. “The duration, scope and volume of UBS’s locate and order- marking violations created a potential harm to the integrity of the market.”
In settling the claims, UBS consented to the findings without admitting or denying wrongdoing, Finra said.