Firm fined US$2 million for failing to supervise short selling

U.S. securities regulators have sanctioned Cantor Fitzgerald & Co. for failing to properly ensure compliance with short selling rules.

The Financial Industry Regulatory Authority (FINRA), the U.S. self-regulatory organization, announced it has fined Cantor Fitzgerald US$2 million for violating U.S. rules that aim to combat abusive naked short selling. The firm settled the case without admitting or denying the allegations, but consented to FINRA’s findings.

Specifically, FINRA found that between 2013 and 2017, Cantor’s supervisory procedures weren’t adequate to ensure compliance with rules that set out requirements for firms to acquire shares utilized in short transactions.

The SRO says that Cantor employed a “predominantly manual system” to supervise its compliance with these requirements, and that this “was not reasonable in light of the firm’s business expansion and increased trading activity.”

It also found that the firm’s compliance personnel identified issues with its oversight, but that the firm didn’t properly address their concerns. Further, the enhancements that it did adopt “were not fully effective.”

As a result of these failings, FINRA found that Cantor routed and/or executed thousands of short orders involving securities without first arranging to borrow them, as required under the short selling rules.

“Firms need to ensure that their supervisory systems are reasonably tailored to their business and once they become aware of deficiencies in their supervisory systems, they must promptly remediate them,” said Susan Schroeder, executive vice president, enforcement, at FINRA.

“Firms’ compliance with [short selling rules] is a continued focus for FINRA when evaluating operational risk and is necessary to preserve investor confidence,” she added.

Staff

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