Thread by @dlauer

Ok, so often when you bring up naked shorting and FTDs with anyone in the industry, they will say that it used to be a problem but Reg SHO fixed it. The claim is always that this is not happening anymore because of robust compliance and enforcement. UBS would like a word...

This week UBS was fined $3M in two actions by FINRA and censured. The actions were straightforward, they did not properly close out FTDs. They sold stock that they did not have, and then they did not deliver that stock. FOR NINE YEARS.
finra.org/sites/default/…

This is an interesting glimpse into a firm that is clearly trying to circumvent the rules. For example, they counted certain shares that they should not have as offsetting shorts and eliminating delivery obligations. They pretended limit orders & non-executed VWAPs satisfied FTDs

The second action is also pretty interesting & not getting much attention. UBS used positions in overseas affiliates to count towards netting out short positions. This is a tactic I've highlighted before, and mentioned to people in the industry. They've told me it's not possible.

Most firms follow the rules most of the time. Most people in the industry are used to effective compliance departments. But the UBS actions provide a glimpse into the other side - that it is very much possible to circumvent Reg SHO rules and protections.

This is how we can see that naked shorting & not closing out FTDs is not only possible, but happened for YEARS. Now we get to the philosophical question - are these actions a sign that regulators are cracking down? Or do they just expose a tiny bit of the total crime?

I understand how most of my followers feel about that question - but I'm talking more about the debate taking place inside the industry. Most in the industry hold these actions out as evidence that you get caught when you break rules.

I think enforcement catches a fraction of wrongdoing, and I think that the fines are a JOKE. $3M for nine years of violations? Give me a break. I also think the AWC system is fundamentally broken. Firms needs to admit wrongdoing, and individuals needs to be held accountable.

For our next set of reforms to advocate, #WeTheInvestors will be focused on these exact issues - FTDs, transparency into what's going on, and ending the ability to continue to roll fails. Check out our list of reforms for our second petition:
reddit.com/r/UrvinFinance…

Worth clarifying this tweet, as has been pointed out to me, the action doesn't specifically say "unexecuted orders" - that's my interpretation of the issue and it's not clear if that happened.