FINRA November 2022 Monthly Disciplinary Actions Alert! In a repeat offense and without admitting or denying the findings, Wedbush Securities Inc censured, fined a total of $900,000.
During the periods of January 1, 2016 through July 31, 2020 and December 9, 2020 through April 7, 2021, Wedbush Securities, Inc. violated Regulation SHO Rules 204(a), (b), and (c) and FINRA Rule 2010 by failing to timely close out approximately 2,056 fail-to-deliver positions as required by Rule 204(a), and, on approximately 390 occasions failing to place securities in the โpenalty boxโ as required by Rule 204(b) and failing to comply with the notice requirement of Rule 204(c). During the relevant periods, the firm further violated FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Regulation SHO Rules 204(a) and (c).
Wedbush did not comply with Regulation SHO Rules 204(a), (b) and (c)
When Wedbush had an FTD, a firm automated system attempted to identify the FTD and to borrow or recall shares to close out it out. If the automated system failed to acquire the shares, firm staff was required to borrow, recall or buy-in shares to close out the FTD. Firm staff, however, failed to timely recall shares that had been out on loan or execute buy-ins where the firm initiated a stock loan recall but did not receive the shares in time to deliver them to the Continuous Net Settlement System (โCNSโ).
During the relevant periods, the firm failed to timely close out approximately 2,056 FTD positions due to the firm failing to timely borrow shares, recall shares that were out on loan or otherwise acquire shares and deliver them in accordance with the requirements of Rule 204(a).
In addition, during the period between January 1, 2016 through July 31, 2020, on approximately 390 occasions, the firm further failed to place a security in which it had failed to obtain a close-out into the penalty box, as required by Regulation SHO Rule 204(b) and to send the notice that the firm had a position in any equity security that had not been closed out, as required by Regulation SHO Rule 204(c).
The firm was on notice that its process for closing out FTDs was unreasonable because in its 2018 and 2019 exams FINRAโs Department of Member Supervision identified FTDs to the firm that were not properly closed out, which the firm acknowledged, but the firm failed to institute effective remedial measures to its supervisory system in response to these red flags. Additionally, the firm did not maintain any WSPs for complying with Rule 204(c) during the relevant periods.
