FINRA Fines UBS and Barclays Capital Over Trading Violations
From the Desk of Jim Eccleston at Eccleston Law.
The Financial Industry Regulatory Authority (FINRA) has fined UBS Securities $2.5 million for violating a rule regarding a common problem known as a “failure to deliver”, which could lead to the potential sale of securities that an investor does not own or has not borrowed.
The rule, known as Regulation SHO, requires advisory firms to close out failure-to-deliver positions resulting from short sales in equity securities by borrowing or purchasing the securities by the beginning of regular trading hours the day after the settlement date. When an advisory firm fails to close out a failure-to-deliver, the rule restricts the firm from receiving additional short sale orders in the security without first arranging to borrow the securities, which is often referred to as the “penalty box”. UBS failed to close out nearly 5,300 failure-to-deliver positions between 2009 and 2018, according to FINRA. FINRA additionally alleged that the firm executed at least 73,000 short sales with an unsatisfied close-out requirement without first arranging to borrow the shares.
FINRA also fined Barclays Capital $2 million over the firm’s failure to ensure that it completed its clients’ trading orders at the lowest prices. While Barclays routes client trading order via its own alternative trading system, known as LX, FINRA alleged that Barclays failed to check whether it could have obtained lower prices on other trading systems between 2014 and 2019. FINRA additionally alleged that Barclays failed to maintain written procedures that would have prevented violations of FINRA’s best execution rule, which requires firms to seek the best prices for client trading orders.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.
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