Finra slaps UBS with $2.5 million fine over short-selling violations

Finra slaps UBS with $2.5 million fine over short-selling violations
It's the second time in as many weeks that Finra has penalized a firm for such trading problems.
OCT 04, 2022

The Financial Industry Regulatory Authority Inc. said Tuesday it had fined UBS Securities $2.5 million for violating an industry rule about addressing a trading problem known as a "failure to deliver" that could lead to abusive “naked” short selling of securities, meaning the sale of securities that an investor does not own or has not borrowed.

It's the second time in as many weeks that Finra has penalized a firm for such trading violations. Last Wednesday, Finra fined Wedbush Securities Inc. $900,000 for similar alleged rule breaking.

As part of the settlement, UBS agreed to Finra's findings without admitting or denying the charges. "UBS is pleased to have resolved this matter," a spokesperson wrote in an email.

According to Finra, from 2009 to 2018, UBS failed to timely close out at least 5,300 failure-to-deliver positions. The firm also routed or executed more than 73,000 short sales in securities with an unsatisfied close-out requirement without first borrowing or arranging to borrow the shares.

The rule, dubbed Regulation SHO, requires firms to take affirmative action to close out failure-to-deliver positions resulting from short sales in equity securities by borrowing or purchasing the securities by the beginning of regular trading hours the day after the settlement date.

When a firm doesn't close out a failure to deliver, the rule prohibits the firm from accepting additional short sale orders in the security without first borrowing or arranging to borrow the security, which is commonly known as the “penalty box.”

"The short sale obligations imposed by Regulation SHO afford critical protection to the markets and investors," Jessica Hopper, executive vice president and head of the enforcement department at Finra, said in a statement.

In June, the Securities and Exchange Commission ordered UBS Financial Services Inc. to pay nearly $25 million to settle charges that it defrauded clients who invested in a complex options product.

'IN the Office' with Michael Natale, head of intermediary distribution at Northern Trust

Latest News

Finra's Reg BI Enforcement: Is it 'ineffective, costly'?
Finra's Reg BI Enforcement: Is it 'ineffective, costly'?

The industry watchdog's own reports reflect failures to deter "willful" and "repeat" violations, raising a crucial question about the future of regulation.

SEC prepares to back away from defending climate rule in court
SEC prepares to back away from defending climate rule in court

Acting Chairman Mark Uyeda directed SEC staff to initiate a pause in court while the commission awaits a quorum. The SEC may decide to withdraw from defending itself in a lawsuit over last year's climate disclosure rule.

wealth.com welcomes Kathy Wunderli in private wealth push
wealth.com welcomes Kathy Wunderli in private wealth push

The top estate planning platform's veteran hire will lead its legal team's efforts to develop estate planning, tax analysis, and wealth transfer solutions for ultra-high-net-worth clients.

Morgan Stanley loses $843,000 investor claim stemming from 'gold bar' scam
Morgan Stanley loses $843,000 investor claim stemming from 'gold bar' scam

“If Morgan Stanley had called my client’s son, this wouldn’t have happened,” the investor's attorney said.

LPL welcomes $630M sibling advisor duo from Corebridge
LPL welcomes $630M sibling advisor duo from Corebridge

Meanwhile, Ameriprise has bolstered its own ranks as an LPL defector joins its branch channel in California.

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.