UBS Securities fined $12m for regulatory violations

27 October 2011

UBS Securities has been fined $12 million for failings surrounding the supervision of millions of short sale orders.

According to the Financial Industry Regulatory Authority (FINRA), mistakes by the bank in the US meant that this large number of orders was mismarked and placed to market without reasonable grounds to believe they could be sourced.

These violations were found to have impacted numerous trading desks, accounts and strategies and affected technology, operations and procedures at the Swiss bank.

Failings by UBS were thought to have been ongoing until the bank checked its systems following the review by the regulator, FINRA explained.

Brad Bennett, FINRA executive vice-president and chief of enforcement, said: “Firms must ensure their trading and supervisory systems are designed to prevent the release of short sale orders without valid locates, and properly mark sale orders, in order to prevent potentially abusive naked short selling.

“The duration, scope and volume of UBS' locate and order-marking violations created a potential for harm to the integrity of the market."

In short sales, the seller does not own a security – instead hopes the prices will fall so a security can be repurchased later at a lower price.

UBS did not admit or deny the charges but “consented to the entry” of the regulator’s findings in the investigation.

By Jim Ottewill

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