In settling this matter, Cantor neither admitted nor denied the charges, but consented to the entry of Finra's findings.
As part of the settlement, Cantor also agreed to retain an independent consultant to conduct a comprehensive review of the firm's policies, systems, procedures and training related to short-sale rules (Reg SHO).
Finra found that Cantor's use of a predominantly manual system to supervise its compliance with Reg SHO was not reasonable in light of the firm's business expansion and increased trading activity – from 35 billion shares in 2013 to 79 billion shares in 2014.
The Securities and Exchange Commission adopted Reg SHO in 2005 to address concerns regarding persistent failures of firms to deliver securities that investors short sell, as well to counter potentially abusive "naked" short selling, e.g., the sale of securities that an investor does not own or has not borrowed.
Finra also determined that, from January 2013 through December 2017, Cantor's supervisory system, including its written supervisory procedures (WSPs), was not reasonably designed to achieve compliance with the requirements of Reg SHO.
Cantor's own compliance personnel identified red flags in 2013, 2014 and 2015 indicating that the firm had systemic issues with Reg SHO and that its supervisory systems were not reasonably tailored to its business.
While Cantor made some changes, according to Finra, the firm did not adapt and enhance its supervision to address the deficiencies its personnel identified. Nor did the firm commit additional staffing to monitoring its compliance with Reg SHO, or implement written supervisory procedures relating to its new lines of business until 2016.