The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Deutsche Bank Securities Inc. $1.4 million for violating Regulation SHO, FINRA’s short interest reporting rule and for related supervisory failures.
Reg SHO generally allows firms to track their positions in a security from certain trading operations or trading desks separately from other positions maintained at the firm through the use of an "aggregation unit." Reg SHO requires, among other things, that in determining the net positions of aggregation units, firms cannot include the securities positions of a non-U.S.-broker-dealer affiliate. FINRA found that for over 10 years, Deutsche Bank has been improperly including securities positions of a non-U.S.-broker-dealer affiliate in numerous aggregation units when determining each unit's net position.
In addition, FINRA requires firms, with certain exceptions, to regularly report their total "short" positions in all customer and proprietary firm accounts in equity securities. These short positions must be reported on a gross, rather than a net basis. FINRA found that from April 2004 to September 2012, Deutsche Bank reported the netted positions in its financial aggregation account as the firm’s short interest positions for that particular day.
Thomas Gira, FINRA Executive Vice President and Head of Market Regulation, said, “The foundation for Regulation SHO compliance and the benefits it provides to investors and market integrity is that firms properly track their short positions in accordance with the rule. Similarly, in order to preserve the value and integrity of short interest information reported to and disseminated by FINRA, it is incumbent on firms to accurately calculate this information.”
FINRA also found that Deutsche Bank’s supervisory system with respect to its aggregation unit structure and short interest reporting was not reasonably designed to detect and prevent such rule violations during the relevant time periods.
In concluding this settlement, Deutsche Bank neither admitted nor denied the charges, but consented to the entry of FINRA's findings.