FINRA fines Nomura for violations of short interest reporting requirements

Maria Nikolova

As a result of a coding issue, Nomura failed to report 3,129 short interest positions totaling 885,607,733 shares.

The United States Financial Industry Regulatory Authority (FINRA) has imposed a fine of $300,000 on Nomura Securities International, Inc. The fine is a part of a settlement offer submitted by the respondent and accepted by FINRA on December 6, 2019.

In summary, during the period May 2012 through November 2015 (the “Review Period”), Nomura failed to comply with FINRA’s short interest reporting requirements concerning the reporting of certain foreign-listed securities. The firm also failed to establish a supervisory system, including written supervisory procedures, that was reasonably designed to achieve compliance with FINRA Rule 4560, FINRA’s short interest reporting rule.

During the review period, Nomura experienced a system related coding issue that led to the exclusion of certain foreign-listed securities from Nomura’s short interest submissions to FINRA. In particular, Nomura failed to include short interest positions in certain foreign-listed securities that shared an ISIN with United States-listed securities. Due to the coding issue, Nomura failed to report 3,129 short interest positions totaling 885,607,733 shares.

In addition, Nomura inaccurately reported six short interest positions totaling 6,790 shares when it should have reported six short interest positions totaling 68,724 shares. Upon receiving notification from FINRA of the reporting deficiencies, Nomura identified and corrected the coding issue in November 2015.

Further, during the review period, Nomura’s supervisory system was not reasonably designed to achieve compliance with its short interest reporting obligations under FINRA Rule 4560. Although the firm was aware of the requirement to report short positions in foreign-listed securities, its written supervisory procedures only noted the reporting requirement and did not provide supervisory guidance, or describe any reviews to be performed, to ensure the firm’s short interest positions in foreign-listed securities were included in the firm’s short interest submissions. Accordingly, Nomura failed to establish and maintain a supervisory system to ensure that it was in fact including all reportable positions in its FINRA 4560 submissions, including reportable positions it held in foreign-listed securities.

On top of the $300,000 fine, which comprises $200,000 for the short interest reporting violations and $100,000 for the related supervision violations, Nomura has agreed to a censure.

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