FINRA fines Two Sigma Securities for Regulation SHO violations

Maria Nikolova

Between March 21, 2014 and May 5, 2016, the firm did not comply with the locate requirement on 3,652,905 occasions.

Two Sigma Securities, LLC has agreed to pay a fine of $225,000 as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA). The settlement concerns violations of Regulation SHO.

The Securities and Exchange Commission (SEC) adopted Regulation SHO in July 2004 to address concerns regarding persistent fails to deliver of securities from trading and potentially abusive “naked” short sales, i.e., the sale of securities that an investor does not own or has not borrowed.

According to Rule 203(b)(1), a broker-dealer is not allowed to accept an equity short sale order from another person, or effect an equity short sale for its own account, without having borrowed the security, or entered into a bona-fide arrangement to borrow the security, or reasonable grounds to believe the security can be borrowed, so that it can be delivered when due. The rule also requires documentation of compliance with the above locate requirement.

The findings show that, between March 21, 2014 and May 5, 2016, Two Sigma Securities did not comply with the locate requirement on 3,652,905 occasions, which involved the firm’s short selling in a non-market making capacity, and resulted in less than 20 fails to deliver of securities at Two Sigma’s clearing firm.

Two Sigma’s locate violations occurred as a result of two different types of coding errors that started in 2014. The coding errors resulted from inadvertent failures to include the firm’s legacy market-making strategy in net position computations, and from failures to distinguish between Threshold and non-Threshold Securities for purposes of complying with the locate requirement. Two Sigma independently detected these errors in May 2016 when it was testing an updated surveillance report for calculating available locates for complying with the locate requirement.

The first system issue caused the short and long positions related to the firm’s legacy market-making strategy to be omitted from net position computations of the firm’s market-making aggregation unit between March 21, 2014 and May 5, 2016.

The second system issue resulted from inadvertent failures to distinguish between Threshold and non-Threshold Securities in certain trade strategies for locate compliance purposes from August 2014 to May 5, 2016

Based on the foregoing, Two Sigma violated Rule 203(b)(1) of Regulation SHO and FINRA Rule 2010.

Furthermore, during the review period, Two Sigma’s supervisory system was not reasonably designed to achieve compliance with Rule 203(b)(1) of Regulation SHO.

On top of the fine, the firm agrees to a censure.

Read this next

Retail FX

The Funded Trader is back? Traders report account closures

Prop trading firm The Funded Trader has updated its website with a few banners, nearly three weeks after it ceased all operations, with claims for a relaunch in the near future. However, there was no official statement on the relaunch on its website, Discord channel, or social media accounts yet.

Executive Moves

NAGA lures former Tickmill compliance exec Loukia Matsia

NAGA Group, a provider of brokerage services, cryptocurrency platform NAGAX and neo-banking app NAGA Pay, appointed Loukia Matsia as their new Head of Compliance and Anti-Money Laundering (AML).

blockdag

Explore 2024’s Top Cryptocurrencies: BlockDAG Leads With 30,000x ROI Potential, Among Surge Predictions For Bitcoin And Ethereum

Navigating the vast ocean of cryptocurrencies might feel overwhelming for many investors, whether seasoned or newbies.

Tech and Fundamental, Technical Analysis

EURUSD Technical Analysis Report 18 April, 2024

EURUSD currency pair can be expected to fall further toward the next support level 1.0600 (which reversed the price earlier this month).

Digital Assets

Binance ordered to remove Changpeng Zhao to get Dubai license

Binance, the world’s largest cryptocurrency exchange, has obtained a Virtual Asset Service Provider (VASP) license in Dubai.

Crypto Insider

Evolution and current state of global crypto adoption

Every four years, the crypto world gets hyped for the Bitcoin halving. Past halvings, like the one of May 2020, saw a massive increase in BTC transactions, which was driven by growing adoption and community involvement.

Digital Assets

Binance set to re-enter India with $2 million fine settlement

Binance, the world’s largest cryptocurrency exchange, is preparing to re-enter the Indian market after agreeing to pay a $2 million fine, according to a report by the Economic Times.

Chainwire

Over 1,000 Builders, Partners, Investors and Enthusiasts Gather at Inaugural Global Event to Celebrate Sui

Last week in Paris, over 1,000 blockchain enthusiasts from 65 countries gathered at the inaugural Sui Basecamp during Paris Blockchain Week. This milestone event showcased major announcements and drew a global community, highlighting Sui’s impactful strides in blockchain technology.

Chainwire

Powered by Qualcomm, Aethir Unveils Game-Changing Aethir Edge Device to Unlock the Decentralized Edge Computing Future

Aethir, in collaboration with Qualcomm, unveils Aethir Edge, the pioneering authorized mining device. Integrated with a distributed cloud network, it offers advanced edge computing, decentralized access, and exclusive rewards. Dive into the decentralized future with Aethir Edge and unlock new dimensions in computing.

<