FINRA fines Wedbush Securities for misreporting of short positions
On a number of occasions from March 2016 through October 2016, the company misreported its short positions in equity securities.
The United States Financial Industry Regulatory Authority (FINRA) has imposed a fine of $90,000 on Wedbush Securities Inc. for violations of short positions reporting requirements. The fine is a part of a settlement of the alleged rule violations.
During the period March 31, 2016 through October 14, 2016 (the review period), Wedbush Securities misreported its short positions in equity securities, which must be reported pursuant to FINRA Rule 4560.
FINRA Rule 4560 requires firms to maintain and periodically report information regarding short positions in all customer and proprietary accounts. FINRA requires that these be reported twice per month. The rule provides that firms shall only report short positions that have settled or reached settlement date as of the close of the relevant reporting settlement date.
During the review period, Wedbush Securities used a system for recording same-day purchases and sales of equities pursuant to which it created offsetting purchases and sales, recording the purchase in the customer’s margin account and the sale in the customer’s cash account. The positions were netted out the following day when the trades settled.
Under this system, the cash account would appear to be short in the security, and the company’s system for reporting short positions did not offset these unsettled sell orders by the corresponding long position in the customer’s margin account. As a result, the company misreported its short positions in equities on all 14 of the bimonthly reporting dates during the review period. It reported a total of 1,911 short positions totaling 23,640,682 shares but should have reported only 1,704 short positions totaling 21,157,936 shares. Thus, it overstated its short positions by a total of 2,482,746 shares and overstated the number of accounts with short positions by 207.
In addition to the fine, the company has agreed to a censure.
Wedbush Securities has disciplinary history related to short interest reporting.
In September 2013, FINRA reached a settlement with the company, whereby Wedbush Securities was censured and fined a total of $87,500, including a $42,500 fine for short interest reporting violations and a $12,500 fine for supervisory deficiencies during the period June 30, 2008 through June 30, 2010.
In September 2017, FINRA accepted a settlement offer in which Wedbush Securities was censured and fined a total of $470,000 for three different violations, including short interest reporting and supervision of short interest reporting during the period July 2010 through October 2013.
