FINRA fines Scotia Capital (USA) Inc for overreporting its short interest positions
Scotia Capital (USA) Inc has agreed to pay a fine of $300,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Between July 2012 and June 2019, the company erroneously included non-reportable short positions reflected in two omnibus accounts in the firm’s short interest reports. The short positions in these accounts were not reportable because they did not result from “short sales” as defined in Rule 200(a) of Regulation SHO and were not transactions that were marked long due to the firm’s or the customer’s net long position at the time of the transaction.
During a sample period of July 2017 through June 2019, SCUSA inaccurately reported approximately 2,400 short interest positions totaling approximately 130 million shares when it should have reported approximately 100 short interest positions totaling approximately 31 million shares.
Between July 2012 and June 2019, SCUSA’s supervisory system was not reasonably designed to achieve compliance with its short interest reporting obligations under FINRA Rule 4560. Specifically, SCUSA’s supervisory system did not include a process to determine whether its short interest report included non-reportable short positions as defined in FINRA Rule 4560 and did not have a reasonable reconciliation process to identify potential inaccurate reporting.
Therefore, Respondent violated NASD Rule 3010 and FINRA Rules 3110 and 2010. B.
On top of the fine, the firm has agreed to a censure.