US-based investment firm Cantor Fitzgerald has been fined $2m by the FINRA for flouting short sale and supervisory norms.
According to FINRA, the violations occurred between January 2013 and December 2017.
The regulator alleged that Cantor’s systems failed to abide by the Securities and Exchange Commission’s Regulation SHO (Reg SHO) due to inefficient supervisory system, including written supervisory procedures.
Reg SHO mandates firms to deliver the shares on settlement date after a short-sale transaction.
Otherwise, firms are required to take affirmative action to close out the “failure to deliver” shares by buying or borrowing the securities.
The watchdog alleged that Cantor primarily used a manual system to monitor its Reg SHO compliance.
This was said to be unreasonable considering Cantor’s increased trading activity.
Cantor was also accused of failing to fix issues related to Reg SHO compliance effectively even after red flags from its staff.
The firm’s remedial measures, such as upgrades to supervisory systems, were not fully effective, FINRA said.
The regulator also alleged that the firm did not deploy additional staff to monitor the issue.
Due to its inefficient supervisory systems, Cantor failed to close-out at least 4,879 fails-to-deliver on time, according to the regulator.
FINRA executive vice president of department of enforcement Susan Schroeder said: “Firms need to ensure that their supervisory systems are reasonably tailored to their business and once they become aware of deficiencies in their supervisory systems, they must promptly remediate them.”
Cantor agreed to the settlement without admitting or refuting the allegations.