The Financial Industry Regulatory Authority (Finra) has fined Credit Suisse Securities (USA) LLC $1.75 million for allegedly failing to properly supervise short sales of securities and marking of sale orders.
Finra, an independent regulator for securities firms doing business in the U.S., claims Credit Suisse entered millions of short sale orders without reasonable grounds to believe that the securities could be borrowed and delivered and mismarked thousands of sales orders.
In concluding this settlement, Credit Suisse neither admitted nor denied the charges, but consented to the entry of Finra's findings.
Finra claims that from June 2006 through December 2010, Credit Suisse's system regarding "locates" and the marking of sale orders was flawed and resulted in a systemic supervisory failure that contributed to failures across its equities trading business. Finra also claims that Credit Suisse mismarked tens of thousands of sale orders in its trading systems, including short sales that were mismarked as "long.''
In a short sale the seller does not actually own the security it is selling, but instead purchases or borrows the security to make the delivery. It requires a broker or dealer to have reasonable grounds for believing it can borrow or purchase the security so that its available for delivery before accepting or making a short sale order. According to Finra, that requirement reduces the chance of deliver failures. Firms must obtain and document this "locate" information before the short sale is entered. Securities regulations also requires a broker or dealer to mark sales of equity securities as long or short.
As the result of Credit Suisse's supervisory failures, Finra claims that many of violations were not detected or corrected until after Finra's investigation.