Regulation SHO Woes: Finra Fines Credit Suisse $1.75 Million For Alleged Violations

The WSJ reported today that Credit Suisse was fined $1.75 mm for alleged Reg SHO violations. This follows a $12 mm fine levied on UBS last October for their own Reg SHO problems. Like the UBS violations, this sounds to us like a disconnect between the systems architecture/implementation and the business side. Checking for stock availability must be a fully automated process when you need to execute a short sale on a seconds notice.

The article quoted a representative from Credit Suisse saying “the Regulation SHO issues didn’t affect systems involving clients and instead involved internal systems”. We are not really sure what this means. Maybe they were internal short trades that didn’t check for availability before the trade was executed? Still, it doesn’t sound good.

If these investigations turn up problems elsewhere, might FINRA start to wonder if this is a systemic issue and impose a more robust process on broker/dealers? That inevitably will slow trading down and reduce market liquidity.

One interesting quote from the article was “Many of Credit Suisse’s violations weren’t detected or corrected by the company until after Finra’s investigation caused Credit Suisse to conduct a substantive review of its systems and monitoring procedures for Reg SHO compliance, Finra said.”

The WSJ article is behind the paywall.

A link to the post from October on the UBS fine is here


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