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UBS Fined $12 Million For Yet Another Trading Incident

UBS Securities was fined $12 million for failing to “properly supervise short sales of securities.”


The Financial Industry Regulatory Authority (FINRA) announced yesterday that UBS violated Regulation SHO and failed to supervise short sales and as result millions of short sale orders were mismarked or placed to the market “without reasonable grounds to believe the securities could be borrowed and delivered.”

In other words UBS was placing short sale orders without first making sure that the securities would be available. UBS was also mismarking millions of sale orders in its trading systems. For example, many of the orders were short sales that were actually mismarked “long”, FINRA says.

The FINRA fine is a drop in the bucket compared to the massive $2.3 billion loss UBS took when one of its traders allegedly made unauthorized trades. That incident triggered UBS CEO Oswald Grübel to resign from his post.

Despite the trading loss, UBS said on Monday that it earned $1.2 billion in the third quarter thank in part to an accounting gain.

FINRA, a self regulatory organization, said in a statement:

FINRA found that UBS’ Reg SHO supervisory system regarding locates and the marking of sale orders was significantly flawed and resulted in a systemic supervisory failure that contributed to serious Reg SHO failures across its equities trading business. First, FINRA found that UBS placed millions of short sale orders to the market without locates, including in securities that were known to be hard to borrow. These locate violations extended to numerous trading systems, desks, accounts and strategies, and impacted UBS’ technology, operations, and supervisory systems and procedures. Second, FINRA found that UBS mismarked millions of sale orders in its trading systems. Many of these mismarked orders were short sales that were mismarked as “long,” resulting in additional significant violations of Reg SHO’s locate requirement. Third, FINRA found that UBS had significant deficiencies related to its aggregation units that may have contributed to additional significant order-marking and locate violations.

Brad Bennett, FINRA executive 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.”

http://www.forbes.com/sites/halahtouryalai/2011/10/26/ubs-fined-12-million-for-yet-another-trading-incident/

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