Larry Doyle, 25 February 2013
Last summer I tagged Wall Street’s industry funded police at FINRA as being little more than meter maids. With a recent review of FINRA’s largest fine imposed in its history, I now realize that I have actually done a serious disservice to those diligent and hard working meter maids patrolling our cities and towns. How so?
Let’s navigate and look more deeply into FINRA’s $12 million fine imposed on those paragons of virtue who ran Union Bank of Switzerland’s equity operations.
What did UBS do to deserve FINRA’s “largest” fine?
The firm mismarked millions of sale orders in its trading systems at various times. Extrapolating from the quantified violations indicated that the firm likely mismarked tens of millions of sale orders during the Relevant Period. Many of these mismarked orders were short sales that were mismarked as “long,” resulting in additional significant violations of Reg SHO’s locate requirement.
What exactly is Reg SHO? From the very agreement between FINRA and UBS, we learn a wealth of information including:
Reg SHO requires a broker-dealer to have reasonable grounds to believe the security can be borrowed so that it can be delivered in time for settlement before effecting a short sale in that security. Identifying a source from which to borrow such security is generally referred to as obtaining a “locate.” Reg SHO requires that the “locate” must be obtained and documented prior to effecting the short sale.
