More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
As a result of these violations, said FINRA, Credit Suisse entered millions of short sale orders without reasonable grounds to believe that the securities could be borrowed and the bank delivered and mismarked thousands of sales orders.
Credit Suisse neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Brad Bennett (left), FINRA executive vice president and chief of enforcement, said, "Credit Suisse's Reg SHO supervisory and compliance monitoring system was seriously flawed. Millions of short sale orders were being entered in its systems without locates for over four years because the firm did not have adequate Reg SHO technology and procedures in place."
Since in a short sale the seller does not actually own the security it is selling, but instead purchases or borrows the security to make the delivery, Reg SHO requires a broker or dealer to have reasonable grounds for believing it can borrow or purchase the security so that it is available for delivery before accepting or effecting a short sale order.
This requirement reduces the possibility of a failure to deliver equity securities. Firms must obtain and document this "locate" information before the short sale is entered. Reg SHO also requires a broker or dealer to mark sales of equity securities as long or short.
FINRA found that from June 2006 through December 2010, Credit Suisse's Reg SHO supervisory system regarding locates and the marking of sale orders was flawed and resulted in a systemic supervisory failure that contributed to significant Reg SHO failures across its equities trading business. During that time, Credit Suisse
The locate violations extended to numerous trading systems, aggregation units and strategies. In addition, Credit Suisse mismarked tens of thousands of sale orders in its trading systems. The mismarked orders included short sales that were mismarked as "long," resulting in additional violations of Reg SHO's locate requirement.
As a result of its supervisory failures, many of Credit Suisse's violations were not detected or corrected by the firm until after FINRA's investigation caused Credit Suisse to conduct a substantive review of its systems and monitoring procedures for Reg SHO compliance.
FINRA found that Credit Suisse's supervisory framework over its equities trading business was not reasonably designed to achieve compliance with the requirements of Reg SHO and other securities laws, rules and regulations throughout the period from at least June 2006 through at least December 2010.