FINRA 'Discipline' Alert! Between December 2018 and April 2021, RBC filed short interest reports that overpriced the number of shares associated with 3,513 short interest positions by approximately 697 million shares.

Penalty? Without admitting or denying anything, a censure and $250,000 fine.

https://www.finra.org/sites/default/files/fda_documents/2021071191801%20RBC%20Capital%20Markets%2C%20LLC%20CRD%2031194%20AWC%20vr.pdf

Good Tuesday evening Superstonk, neighborhood jellyfish back with you on some 'discipline' JUST handed down TODAY for RBC.

As these releases convey a ton of information I am going to try and follow the same recent approach, I hope this format makes sense.

• I am going to outline what RBC did from points from the filing.
• I am going to pull the rules they broke and attempt to provide wut mean definitions
• I am going to try and break each section against RBC down a bit further.
• I will talk about the penalty leveled.
• I will talk about how the no good, bad, nefarious behavior could impact GameStop.
• Lastly, as always, TLDRS.

Let's hit it!What RBC did (without admitting or denying):

• Between December 2018 and April 2021, RBC violated FINRA Rule 4520 and 2010 when it filed short interest reports that overpriced the number of shares associated with 3,513 short interest positions by approximately 697 million shares.
• RBC also failed to establish and maintain supervisory systems, including written supervisory procedures, reasonably designed to achieve compliance with short interest reporting requirements in violation of FINRA Rules 3110 and 2010.The Rules RBC Broke:

Wut mean?

• Imagine you're at school and there's a big baseball card trading club. Some students believe the value of certain cards will drop - they're "short" on these cards. Others believe the value will rise - they're "long" on these cards.
• Now, FINRA Rule 4560 is like the school principal who says, "Alright students, every two weeks, you've got to tell me how many cards you're short on." This rule requires all member firms (the students in this case) to report their total short positions (the bets on the cards losing value) in all customer and proprietary firm accounts in all equity securities (the baseball cards) twice a month.
• FINRA Rule 3110(a) is like the school principal saying, "Every club in this school needs to have a system in place to make sure everyone is playing fair." This rule requires each member firm (or in our case, each student in the baseball card trading club) to establish and maintain a system to supervise the activities of each associated person (the members of the club).
• The system should be reasonably designed to achieve compliance with the applicable securities laws and regulations and FINRA rules. This means the system should help ensure everyone is following the rules of the game, not cheating or making unfair trades.RBC overpriced its short interest position:

Wut mean?:

• So, between December 2018 and April 2021, RBC, one of the students in our baseball card trading club, was reporting their trades to the school principal (FINRA) in a way that wasn't quite right.
• They included short positions from 13 accounts in their reports. These positions were like trades where they borrowed cards from other students (repurchase and pledge transactions), borrowed cards from their siblings (security lending), and trades involving other clubs that RBC helps out with (syndicate activity of correspondent firms).
• But here's the thing: these weren't "short sales" as defined by the club's rule book (Rule 200(a) of Regulation SHO). They weren't trades where RBC was betting that the value of the cards would go down. And because of that, they weren't supposed to be included in the reports under the club's reporting rule (FINRA 4560).
• So, RBC ended up reporting that they had short positions on 771 million cards when they should have only reported about 74 million. That means they overreported by about 697 million cards!RBC failed to maintain a supervisory system reasonably designed to ensure the filing of accurate short interest reports:

Wut mean?:

• Between December 2018 and April 2021, RBC, one of the students in our baseball card trading club, didn't have a good system in place to make sure they were following the club's reporting rules (FINRA Rule 4560).
• They had a system where they marked accounts as reportable or non-reportable for their reports to the school principal (FINRA). This is like keeping a list of which trades they need to report and which they don't. But their system didn't have a way to check if they were marking the accounts correctly on an ongoing basis. It's like if they had a checklist for their trades, but they never double-checked to make sure they were ticking the right boxes.
• On top of that, RBC was relying on email notifications from another club that they help out with (the firm's correspondent business clearing line) to reconcile their account coding. This is like getting emails from another club to help them figure out which trades to report. But they didn't have a process in place to make sure they were actually getting and reviewing these emails on time.Penalty?

Without admitting or denying anything, a censure and $250,000 fine.How could this nefarious behavior impact GameStop?

1. Stock Price Volatility: Overreporting short interest can create a distorted picture of market sentiment. If investors believe there's a high short interest in GameStop, it could lead to increased volatility in the stock's price.
2. Investor Confidence: Trust in the market's transparency and fairness is crucial for investor confidence and when a large institution like RBC fails to accurately report its short positions, it can shake investor confidence--rigged market much anyone?
3. Access to Liquidity: Inaccurate reporting of short interest can also impact the perceived liquidity of a stock. High short interest can give the impression of high trading volume, suggesting good liquidity. However, if the reported short interest is significantly overestimated, the actual liquidity could be lower than investors believe.TLDRS:

From December 2018 to April 2021 RBC included short positions from 13 accounts that shouldn't have been there because they weren't "short sales" as defined by the rules.

• This led to them reporting about 697 million more shares than they should have.

On top of that, RBC's system for making sure they were following the reporting rules wasn't up to scratch.

• They had a way of marking accounts as reportable or not, but they didn't regularly check if they were doing this correctly.
• They also relied on email notifications to reconcile their account coding, but they didn't have a process to make sure these emails were being received and reviewed on time.

Reddit Post