Barclays Capital Inc has agreed to pay a fine of $140,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

Between December 1, 2020 and May 23, 2022, Barclays effected 25,711 short sale orders without locating securities available to borrow, in violation of Rule 203(b)(1) of Regulation SHO of the Securities Exchange Act of 1934 and FINRA Rule 2010.

Between December 2020 and September 2023, Barclays violated FINRA Rules 3110(a) and 2010 by failing to establish and maintain a supervisory system reasonably designed to achieve compliance with the locate requirements of Rule 203(b)(1) of Regulation SHO.

Barclays has agreed to a censure on top of the $140,000 fine.

Rule 203(b)(1) of Regulation SHO, known as the “locate requirement,” states that a broker-dealer may not accept a short sale order in an equity security from another person, or effect a short sale in an equity security for its own account, unless it has (i) borrowed the security or entered into a bona-fide arrangement to borrow the security, or (ii) has reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due, and (iii) has documented compliance with subsection (b)(1).

A broker-dealer must, therefore, locate securities available for delivery before effecting short sales for its own account.

Rule 203(b)(2)(iii) of Regulation SHO provides an exception to the locate requirement for short sales effected by a market maker in connection with bona-fide market making activities in the security for which the exception is claimed.