FINRA Fines Two BDs for Short Sale Violations
FINRA levied fines of $575,00 and $350,000 against two broker-dealers for failing to obtain proper locates for short sales in violation of Regulation SHO. One of the BDs had a separate system for certain prime clients that bypassed the firm’s automated system that blocked short sales without documentation of an adequate locate (i.e. an identified source from which to borrow the security). The other BD simply turned off the automated system because of problems importing data.
OUR TAKE: The regulators continue to increase surveillance of the short sale market, often blaming short sales for market volatility. They especially don’t like firms that treat “prime” clients differently when it comes to regulatory requirements.