FINRA says that StockCross Financial Services, Inc. will pay an $800,000 fine for violating Regulation SHO, as well as supervisory violations that went on for over three years. By settling, the firm is not denying or admitting to the charges. It has, however, consented to the entry of the self-regulatory organization’s findings.
FINRA said that from 11/09 to 5/13, StockCross’s system for tracking and monitoring close-out obligations was flawed because the firm had not thought that it was supposed to net flat/long in a security and after shares had been purchased to satisfy its close-out obligation.
The SRO said that after transactions for purchase were made, the firm failed to put restrictions or limits on the rest of the trading activity in that security for the day and its flawed system compelled StockCross to experience delivery failure for several statement days in a row on about 1,826 occasions. Also, StockCross purportedly made more than 4,100 short sales when there were outstanding close-out obligations for these securities.
The SRO said StockCross lacked a supervisory system and written procedures of supervision that were designed in a reasonable manner so that compliance with Regulation SHO’s Rule 204 could be achieved. Under that rule, brokers and dealers that are part of a registered clearing agency are required to act to close out any failure to deliver positions. This means that a dealer or broker must buy or borrow securities that are similar in kind and amount. The participant has until the start of regular trading hours on the settlement day after the settlement date to close out a failure to deliver when a short sale transaction is involved.
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FINRA Fines StockCross Financial Services, Inc. $800,000 for Regulation SHO Violations, FINRA, August 12, 2015