UBS settles claim on records of short selling
By Kara Scannell in New York
UBS agreed to pay $8m to settle allegations that it pervasively violated short selling record-keeping rules aimed at preventing abusive trading, in what could be the first of several cases involving securities lending.
The settlement, reached with the Securities and Exchange Commission on Thursday, followed the bank’s agreement to pay $12m last month to settle related short selling violations with the Financial Industry Regulatory Authority, a self-regulatory organisation. As part of its cease and desist order with the SEC, UBS agreed to retain an independent consultant and did not admit or deny wrongdoing.
More
ON THIS STORY
UBS defies bonus slashing in wake of scandal
UBS fights to remain competitive
UBS global equities chiefs stand down
Video UBS keeps up appearances
In depth UBS trading scandal
Sign up now
FirstFT is our new essential daily email briefing of the best stories from across the web
The case alleging violations of the short selling rule known as “Reg Sho” is likely to be the first of several. “Reg Sho violations are an area that we’re definitely interested in and we’re pursuing more misconduct in this area,” said Bruce Karpati, an SEC attorney on the case.
Short selling rules went into effect in 2005 despite heavy lobbying by the finance industry. Under the rules, banks are required to “locate” securities and create a log identifying the source of the securities before accepting customer orders for short sales. The intent was to keep the markets orderly and not allow a bear raid on a stock.
According to the SEC, since at least 2007, UBS’s lending desk kept inaccurate “locate” logs. The practice was “pervasive, extending to every security handled by the lending desk”, the SEC said.
UBS traders “routinely recorded the name of a lender’s employee even when no one at UBS had actually contacted the lender employee to confirm availability”, according to the SEC filing. Thousands of “locates” were attributed to employees who were out of the office, the SEC said.
The allegations give some credibility to critics who have argued that Wall Street banks may have enabled naked short selling, an abusive trading practice of betting against a stock without ever intending to borrow the securities. The SEC does not allege UBS engaged or enabled naked short selling.
The SEC said the impact of UBS’s poor record-keeping was mitigated because UBS was “generally” able to borrow stock from other lenders in time to meet delivery requirements. The SEC also said some clients executed smaller short sales than initially indicted or did not do them at all.
UBS said it was pleased to have resolved the issue and said it “implemented enhancements” to its securities lending desk.
By Kara Scannell in New York
UBS agreed to pay $8m to settle allegations that it pervasively violated short selling record-keeping rules aimed at preventing abusive trading, in what could be the first of several cases involving securities lending.
The settlement, reached with the Securities and Exchange Commission on Thursday, followed the bank’s agreement to pay $12m last month to settle related short selling violations with the Financial Industry Regulatory Authority, a self-regulatory organisation. As part of its cease and desist order with the SEC, UBS agreed to retain an independent consultant and did not admit or deny wrongdoing.
More
ON THIS STORY
UBS defies bonus slashing in wake of scandal
UBS fights to remain competitive
UBS global equities chiefs stand down
Video UBS keeps up appearances
In depth UBS trading scandal
Sign up now
FirstFT is our new essential daily email briefing of the best stories from across the web
The case alleging violations of the short selling rule known as “Reg Sho” is likely to be the first of several. “Reg Sho violations are an area that we’re definitely interested in and we’re pursuing more misconduct in this area,” said Bruce Karpati, an SEC attorney on the case.
Short selling rules went into effect in 2005 despite heavy lobbying by the finance industry. Under the rules, banks are required to “locate” securities and create a log identifying the source of the securities before accepting customer orders for short sales. The intent was to keep the markets orderly and not allow a bear raid on a stock.
According to the SEC, since at least 2007, UBS’s lending desk kept inaccurate “locate” logs. The practice was “pervasive, extending to every security handled by the lending desk”, the SEC said.
UBS traders “routinely recorded the name of a lender’s employee even when no one at UBS had actually contacted the lender employee to confirm availability”, according to the SEC filing. Thousands of “locates” were attributed to employees who were out of the office, the SEC said.
The allegations give some credibility to critics who have argued that Wall Street banks may have enabled naked short selling, an abusive trading practice of betting against a stock without ever intending to borrow the securities. The SEC does not allege UBS engaged or enabled naked short selling.
The SEC said the impact of UBS’s poor record-keeping was mitigated because UBS was “generally” able to borrow stock from other lenders in time to meet delivery requirements. The SEC also said some clients executed smaller short sales than initially indicted or did not do them at all.
UBS said it was pleased to have resolved the issue and said it “implemented enhancements” to its securities lending desk.
