Deutsche Bank Securities & National Financial Services Receive Fines For Allegedly Facilitating Customer Execution of Short Sales Through Direct Market Access Order Systems That Violated the ‘Locate’ Requirement of Regulation SHO
The Financial Industry Regulatory Authority (FINRA) has fined two broker-dealers, Deutsche Bank Securities & National Financial Services, a total of $925,000 (Deutsche Bank Securities was fined $575,000 and National Financial Services (NFS) was fined $350,000) for executing short sale orders in violation of Regulation SHO and related supervisory violations, according to a May 13, 2010 FINRA securities & investment regulatory press release.
Regulation SHO reportedly prohibits a broker or dealer from accepting or effecting a short sale order in an equity security without reasonable grounds to believe that the security can be borrowed, so that it can be delivered on the date delivery is due. A broker or dealer is required to identify and document a source (referred to as a Locate or Locates) from which to borrow such security prior to effecting a short sale.
FINRA’s review of a sample of short sale orders at Deutsche Bank Securities & National Financial Services reportedly revealed that some short sale orders entered through the Deutsche Bank Securities & National Financial Services Direct Market Access trading systems were released for execution without evidence that a locate had actually been obtained.
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