FINRA fines Gar Wood Securities for alleged violation of Regulation SHO
Gar Wood Securities, LLC has agreed to pay a fine of $100,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
FINRA says Gar Wood violated Rule 203(b)(1) of Regulation SHO of the Securities Exchange Act of 1934 and FINRA Rule 2010 by accepting approximately 2,000 short sale orders without obtaining locates between May 2016 and May 2019. During the same period, Gar Wood also failed to maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with Rule 203(b) in violation of FINRA Rules 3110 and 2010.
Between May 2016 through May 2019, Gar Wood inadvertently configured its delivery-versus-payment (DVP) client accounts to allow short sale orders entered into the firm’s order management systems (OMS) to route for execution without obtaining locates. As a result, Gar Wood failed to obtain locates for approximately 2,000 short sale orders between May 2016 and May 2019.
Between May 2016 and August 2018, one of Gar Wood’s OMSs was incorrectly coded to send a principal capacity symbol for client agency orders to the reporting party. As a result, Gar Wood caused 867,930 transactions to be reported to the FINRA TRF with the incorrect capacity (70% of Gar Wood’s total executions).2 On August 31, 2018, Gar Wood switched all agency order routing to an OMS that was correctly coded to report the proper capacity symbol.
Therefore, Gar Wood violated FINRA Rules 7230A and 2010.
Between May 2016 and June 2019, Gar Wood’s supervisory system, including WSPs, was not reasonably designed to achieve compliance with Gar Wood’s trade reporting obligations under FINRA Rule 7230A. Gar Wood lacked a review to confirm all required trade information, such as capacity, was accurately reported to the FINRA TRF.
In June 2019, Gar Wood updated its WSPs to address the supervisory deficiencies in this AWC.
Therefore, Gar Wood violated FINRA Rules 3110 and 2010.
In addition to the fine, the respondent has agreed to a censure.