FINRA fines Apex Clearing Corporation over failure to comply with short interest reporting requirements
For two sample settlement dates during the 47-months review period the firm failed to report 256 short interest positions totaling 481,195 shares, and inaccurately reported 130 short interest positions totaling 1,648,923 shares.
Apex Clearing Corporation has agreed to pay a fine of $140,000 as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).
FINRA has found that, from June 2012 through April 2016, Apex failed to comply with FINRA’s short interest reporting requirements and related supervision obligations.
During the review period, Apex experienced an issue in its short interest reporting logic that excluded certain short interest positions from the firm’s submissions to FINRA. Apex instructed its correspondent broker-dealer customers to book short positions into either the Type 1 (cash) or Type 5 (short margin) accounts. Without Apex’s knowledge, certain correspondent broker-dealers were booking short positions into another account available to them – Type 2 (margin) account. The short positions booked into this account were not included in the firm’s submissions to FINRA.
For two sample settlement dates during the 47-months review period the firm failed to report 256 short interest positions totaling 481,195 shares, and inaccurately reported 130 short interest positions totaling 1,648,923 shares, when it should have reported 130 short interest positions totaling 2,528,244 shares.
Thus, the firm violated FINRA Rules 4560 and 2010.
Also, during the review period, the firm’s supervisory system was not reasonably designed to achieve compliance with its short interest reporting obligations under FINRA Rule 4560. In particular, Apex failed to establish and maintain a supervisory system, including written supervisory procedures, to confirm that its reporting system captured all reportable short interest positions. Moreover, the firm did not have a supervisory system to review for the accuracy of the firm’s short interest positions reported to FINRA.
This way, Apex violated NASD Rule 3010 (for conduct prior to December 1, 2014) and FINRA Rule 3110 (for conduct on and after December 1, 2014), and FINRA Rule 2010.
On top of the monetary penalty, which comprises $100,000 for the short interest reporting violations and $40,000 for the related supervision violations, Apex also consented to censure.
