FINRA fines Wedbush $900K over reporting violations
The Financial Industry Regulatory Authority continues to take disciplinary actions against financial services firms for providing inaccurate securities trading information.
Today, the industry’s self-regulatory authority ordered Los Angeles-based Wedbush Securities Inc, a provider of private and institutional brokerage in the US, to pay a fine of $900,000 for various reporting lapses over a period of at least five years.
From January 2016 through April 2021, according to the Finra, Wedbush loaned securities to some clients to settle their “long” sales, but the company repeatedly ignored red flags of this client’s fails-to-deliver in a timely manner.
The legal notice further explains how the “long” sale occurred; it reads:
“Wedbush Securities, Inc. violated Regulation SHO Rules 204(a), (b), and (c) and FINRA Rule 2010 by failing to timely close out approximately 2,056 fail-to-deliver positions as required by Rule 204(a), and, on approximately 390 occasions failing to place securities in the “penalty box” as required by Rule 204(b) and failing to 2 comply with the notice requirement of Rule 204(c). During the relevant periods, the firm further violated FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Regulation SHO Rules 204(a) and (c).”
Short selling – which allows investors to make gains in a falling market by borrowing a security they don’t own, selling it and agreeing to buy it back at a lower price – plays an important role in developed capital markets since it makes price discovery more efficient and smooths volatility whilst providing investors with a host of Risk Management tools.
Regulation SHO requires firms to deliver the shares, after completion of a short sale transaction, on the settlement date or take affirmative action to close out the “failure to deliver” shares by purchasing or borrowing the securities. To limit ongoing naked short positions, the broker has no choice but to reject any additional sale orders if the securities were not delivered or closed out within legally required time frames.
Regulation SHO also prohibits the execution of short sales in covered securities at a price that is less than or equal to the best bid when the price of the security has fallen by 10 percent or more in one day.
The U.S. regulator said during the period of review that Wedbush did not have adequate systems and controls in place to detect and prevent the violations. In addition, FINRA’s latest fine was stipulated on repeated failures in accurately submitting required trade reports to the appropriate FINRA Trade Reporting Facility (TRF).
Finra and the Securities and Exchange Commission (SEC) regularly request such information to help prevent and stop market manipulation and insider trading.
Founded in 1955, Wedbush Securities provides futures Execution and Clearing services to the world’s major futures exchanges, supporting a variety of clients, including non-clearing FCMs, introducing brokers, professional traders and institutions.