FINRA fines National Securities Corporation for Reg SHO breaches and other failings
24 June 2022 US
Image: AdobeStock/Yurii
FINRA has instructed the National Securities Corporation (NSC) to pay approximately US$9 million in fines for a sequence of violations, which includes failing to obtain locates for more than 33,000 short sale transactions as required under Regulation SHO.
The US not-for-profit organisation ordered NSC to pay more than US$4.77 million as disgorgement against net profits that it generated through underwriting 10 public offers in which the company attempted to artificially influence the market for the securities being offered.
Alongside this, NSC, a New York-based full service brokerage, was required to pay more than US$625,000 for failing to disclose material information to customers that bought securities in GPB Capital Holdings LLC through private placements.
FINRA found that, between June 2016 and December 2018, NSC violated Rule 101 of Regulation M under the 1934 Securities Exchange Act by inducing (or attempting to induce) customers to buy stock in the aftermarket for three IPOs and seven follow-on offers prior to their completion.
Rule 101 specifies that underwriters may not induce any person to bid for or purchase any offered security in the aftermarket during a restricted period after the offer.
In parallel with the above, NSC was found guilty of a number of other supervisory and operational violations and was fined a further US$3.6 million for these breaches.
Among these failings, the regulator found that between January 2005 and April 2020 NSC had neglected to identify locates for more than 33,000 short sale trades as it was required to do under rules 203(b)(1) of Reg SHO under the US Exchange Act.
FINRA is a US not-for-profit organisation that is overseen by the US Securities and Exchange Commission and that writes rules, oversees and enforces compliance in pursuit of market integrity and investor protection.
Jessica Hopper, head of FINRA’s Department of Enforcement, says: “Investors are entitled to rely on a market that is free from artificial price movement created by underwriters.
“We will continue to vigilantly enforce rules designed to prevent underwriters from influencing the market for an offered security, including supporting the offering price by creating a perception of aftermarket demand.”
The US not-for-profit organisation ordered NSC to pay more than US$4.77 million as disgorgement against net profits that it generated through underwriting 10 public offers in which the company attempted to artificially influence the market for the securities being offered.
Alongside this, NSC, a New York-based full service brokerage, was required to pay more than US$625,000 for failing to disclose material information to customers that bought securities in GPB Capital Holdings LLC through private placements.
FINRA found that, between June 2016 and December 2018, NSC violated Rule 101 of Regulation M under the 1934 Securities Exchange Act by inducing (or attempting to induce) customers to buy stock in the aftermarket for three IPOs and seven follow-on offers prior to their completion.
Rule 101 specifies that underwriters may not induce any person to bid for or purchase any offered security in the aftermarket during a restricted period after the offer.
In parallel with the above, NSC was found guilty of a number of other supervisory and operational violations and was fined a further US$3.6 million for these breaches.
Among these failings, the regulator found that between January 2005 and April 2020 NSC had neglected to identify locates for more than 33,000 short sale trades as it was required to do under rules 203(b)(1) of Reg SHO under the US Exchange Act.
FINRA is a US not-for-profit organisation that is overseen by the US Securities and Exchange Commission and that writes rules, oversees and enforces compliance in pursuit of market integrity and investor protection.
Jessica Hopper, head of FINRA’s Department of Enforcement, says: “Investors are entitled to rely on a market that is free from artificial price movement created by underwriters.
“We will continue to vigilantly enforce rules designed to prevent underwriters from influencing the market for an offered security, including supporting the offering price by creating a perception of aftermarket demand.”
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