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December 28, 2011 at 05:21 AM
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.
