FINRA Fines StockCross Financial Services, Inc. $800,000 for Regulation SHO Violations
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined StockCross Financial Services, Inc. $800,000 for Regulation SHO violations and for related supervisory violations that spanned more than three years. As part of the sanctions, StockCross is ordered to provide a report to FINRA regarding the effectiveness of its Reg SHO supervisory system within six months.
Thomas Gira, FINRA Executive Vice President and Head of Market Regulation, said, "FINRA expects firms to fully comply with all of the requirements of Regulation SHO. This is essential in dealing with potentially abusive short selling conduct that negatively affects the markets, and failure to do so can result in investor harm."
After completion of a sales transaction, firms are required to deliver the shares transacted to a registered clearing agency for settlement. If the shares are not delivered by the appropriate date, SEC's Reg SHO requires the firm to take affirmative action to close out the failure to deliver by purchasing or borrowing the securities. The firm must be net flat or long in the relevant security at the end of the "close-out" date. If the failure to deliver is not closed out, the firm may not accept additional short sale orders in the security without first borrowing or arranging to borrow the security.
FINRA found that from November 2009 to May 2013, StockCross' system to monitor and track its close-out obligations was fundamentally flawed because StockCross did not believe it was required to be either net flat or long in a security at the end of the day on which it purchased shares to meet its close-out obligation. In fact, after the purchase transactions had been executed, the firm did not put any limit or restrictions on the remainder of the day's trading activity in that security. StockCross' flawed system caused the firm to have a failure to deliver for seven or more consecutive settlement days on approximately 1,826 occasions. Additionally, StockCross executed at least 4,132 short sales at a time when it had an outstanding close-out obligation for such securities, and did not first borrow or arrange to borrow the security.
In addition, FINRA found that StockCross did not have a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Rule 204 of Regulation SHO.
In concluding this settlement, StockCross neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2014, members of the public used this service to conduct 18.9 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.