22 August 2017
Visit http://response.ncr.com

Finra fines Deutsche Bank and NFS over short sales violations

14 May 2010  |  7210 views  |  0 STOP

Deutsche Bank Securities and National Financial Services (NFS) have been fined a total of $925,000 by US regulators for violating short order rules by circumventing their direct market access (DMA) trading systems.

The Financial Industry Regulatory Authority (Finra) fined Deutsche Bank's New York securities business $525,000 and Fidelity unit NFS $350,000 for executing "numerous short sale orders" in violation of Regulation SHO and related supervisory violations.

Regulation SHO says brokers or dealers cannot make a short sale without identifying a source from which to borrow the security. This is generally referred to as obtaining a "locate" and these must be obtained and documented before making a short sale.

Finra says both Deutsche Bank and NFS implemented DMA trading systems for their customers that were designed to block the execution of short sale orders unless a "locate" had been obtained and documented.

Yet on several occasions Deutsche Bank disabled its system and NFS created a separate one for certain customers, meaning some short orders were not blocked.

In Deutsche Bank's case, the firm's systems sometimes experienced outages that prevented the importing of locate data and, as a result, short sale orders placed for execution were automatically rejected, even when a client had already obtained a valid and properly documented locate. Finra says that during these outages, the bank disabled the system's automatic block, permitting client short sale orders to automatically proceed for execution.

Meanwhile, NFS created a separate manual locate request and approval process for around 12 prime brokerage clients. Requests for, and approvals of, the multiple simultaneous locates were transmitted via e-mail with account representatives on the firm's Prime Services Desk, and were not required to be entered into its stock loan system, says the watchdog.

Further, Finra says both firms supervisory systems were inadequate. Deutsche Bank was aware that its system to block short sale orders in the absence of locates was periodically disabled over a period of more than four years - from January 2005 through September 2009 - but failed to roll out a replacement. Similarly, NFS created a flawed system for certain customers that failed to ensure that some short sale orders had valid and timely locates for nearly four years - from January 2005 through August 2008).

James Shorris, acting chief of enforcement, Finra, says: "The locate requirement is an essential component of ensuring that short sales are executed properly. The failure to design, implement and supervise systems that reasonably ensure that shares of a security are available to be borrowed before a short sale is executed significantly undermines the effectiveness of Regulation SHO."

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Finra issues social networking guidance

Finra issues social networking guidance

26 January 2010  |  10894 views  |  0 comments
Finra fines Terra Nova $400,000 over improper payments

Finra fines Terra Nova $400,000 over improper payments

24 November 2009  |  5341 views  |  0 comments
Finra fines Scottrade $600,000 for AML failings

Finra fines Scottrade $600,000 for AML failings

26 October 2009  |  7945 views  |  0 comments
Finra fines Citi $600,000 for weak trade supervision

Finra fines Citi $600,000 for weak trade supervision

13 October 2009  |  4882 views  |  0 comments

Related company news


Related blogs

Create a blog about this story (membership required)
download the paper nowvisit www.vasco.comvisit www.dorsum.eu

Who is commenting?

A Finextra member Finextra Member Commented on: Real-time payments in...
A Finextra member Finextra Member Commented on: Barclays uses sensors...

Top topics

Most viewed Most shared
Mobile contactless spending accelerating in UKMobile contactless spending accelerating i...
12234 views comments | 26 tweets | 23 linkedin
Barclays pairs banking data with third party apps for SmartBusiness DashboardBarclays pairs banking data with third par...
10755 views comments | 22 tweets | 33 linkedin
hands typing furiouslyWhy Is Risk Analytics Important?
10103 views 0 | 6 tweets | 1 linkedin
RBS to bring Silicon Valley to EdinburghRBS to bring Silicon Valley to Edinburgh
9994 views comments | 10 tweets | 8 linkedin
Australia regulates digital currenciesAustralia regulates digital currencies
9888 views comments | 21 tweets | 34 linkedin