“Firms must ensure their trading and supervisory systems are designed to prevent the release of short sale orders without valid locates, and properly mark sale orders, in order to prevent potentially abusive naked short selling,” said Brad Bennett, FINRA executive vice president and chief of enforcement, in a press release. “The duration, scope and volume of UBS’ locate and order-marking violations created a potential for harm to the integrity of the market.”
For its part, UBS said in a statement that it “is pleased to have resolved this matter. This investigation is concluded, and all issues identified by FINRA and UBS have been remediated.”
According to FINRA, investors making short sales are selling securities that they do not own, and when it is time to deliver the securities, they must either purchase or borrow the securities in order to make the delivery.
“Reg SHO requires a broker-dealer to have reasonable grounds to believe that the security could be borrowed and available for delivery before accepting or effecting a short sale order,” the regulatory group said in a press release. Firms are required to obtain and document this “locate” information before short sales occur, which reduces the number of potential failures to deliver securities. In addition, Reg SHO mandates that broker-dealers mark sales of equity securities as long or short.