FINRA fined UBS Securities $2.5 million for supervisory violations

The nonprofit revealed it had fined UBS Securities LLC $2.5 million. The watchdog said the punishment was a result of the SHO’s rules and supervision violations spanning a period of nine years.

Reg SHO regulates the short selling or selling of debt securities.

The ad explained:

The rule requires firms to take affirmative action to close out “default” positions resulting from short sales of equity securities by borrowing or buying the securities before regular trading hours on the day following the settlement date.

If the firm fails to close the default, it is prohibited from accepting additional short orders to sell the security without first borrowing or arranging to borrow the security.

Between 2009 and 2018, UBS failed to close about 5,300 defaulted positions on time, according to FINRA. In addition, more than 73,000 short sales of “outstanding closing requirement” securities were redirected or executed.

The self-regulatory organization identified three long-standing problems that contributed to these violations. Among these is the broker’s use of volume-weighted average price (VWAP) callbacks or limit orders to fulfill buy-in obligations for “under-delivery”.

FINRA noted that UBS also used segregated shares of long-sold clients to cover “underperforming positions.” In addition, some of brokers‘ order management systems routinely did not limit short sales when there was an unsatisfactory closing requirement,

FINRA said the broker agreed to settle the allegations without admitting or denying them.

Meanwhile, the US SEC introduced a $25 million fine at UBS Financial Services Inc. to settle fraud allegations related to the complex investment strategy Yield Enhancement Strategy (YES) earlier in June.

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