ITG fined for sec lending violations
16 January 2017 Washington DC
Image: Shutterstock
The US Securities and Exchange Commission (SEC) has fined broker ITG more than $24.4 million for securities lending violations relating to the facilitation of naked short selling.
ITG engaged in ‘pre-release’ transactions of American depository receipts (ADRs) without owning the foreign shares or taking the necessary steps to ensure they were custodied by the counterparty on whose behalf they were being obtained between 2011 and 2014.
According to the SEC, many of the obtained ADRs were ultimately used for short selling and dividend arbitrage, even though they may not have been backed by foreign shares.
“ITG’s failure to properly supervise its securities lending desk caused ADRs to be issued that were not backed by actual shares, leaving them ripe for potential market abuse,” said Andrew Calamari, director of the SEC’s New York regional office.
ITG violated Section 17(a)(3) of the Securities Act of 1933 and failed reasonably to supervise its employees on its securities lending desk.
Without admitting or denying the findings, ITG agreed to pay more than $15 million in disgorgement plus more than $1.8 million in interest and a penalty of more than $7.5 million.
The SEC’s order acknowledged ITG’s cooperation in the investigation, which is ongoing.
ITG engaged in ‘pre-release’ transactions of American depository receipts (ADRs) without owning the foreign shares or taking the necessary steps to ensure they were custodied by the counterparty on whose behalf they were being obtained between 2011 and 2014.
According to the SEC, many of the obtained ADRs were ultimately used for short selling and dividend arbitrage, even though they may not have been backed by foreign shares.
“ITG’s failure to properly supervise its securities lending desk caused ADRs to be issued that were not backed by actual shares, leaving them ripe for potential market abuse,” said Andrew Calamari, director of the SEC’s New York regional office.
ITG violated Section 17(a)(3) of the Securities Act of 1933 and failed reasonably to supervise its employees on its securities lending desk.
Without admitting or denying the findings, ITG agreed to pay more than $15 million in disgorgement plus more than $1.8 million in interest and a penalty of more than $7.5 million.
The SEC’s order acknowledged ITG’s cooperation in the investigation, which is ongoing.
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