FINRA Slams $475K Fine on UBS Securities—Second in 4 Months

Monday, 06/02/2023 | 16:41 GMT by Solomon Oladipupo
  • UBS released 41 reports between 2015 and 2019 allegedly containing inaccurate details.
  • The broker-dealer has agreed to settle without admitting or denying FINRA's findings.
UBS

The Financial Industry Regulatory Authority (FINRA) has slammed another fine on New York-based securities broker, UBS Securities (UBS-S). This time the self-regulatory organization hit the firm, which is the brokerage arm of the Swiss banking group, UBS, with a censure order and fine of $475,000 for publishing “inaccurate” monthly statistics on execution of its covered orders between September 2015 and January 2019.

Details of the new fine, which UBS Securities has agreed to pay without admitting or denying the allegations, are contained in a Letter of Acceptance, Waiver and Consent (AWC) filed by the broker and accepted by FINRA on February 3.

The new action comes four months after the private industry regulator, which supervises brokerage firms in the United States, slapped a $2.5 million fine on UBS Securities for routing or executing over 73,000 ‘naked’ shorts sales between 2009 and 2018. Additionally, the United States Securities and Exchange Commission recently fined UBS Securities $125 million alongside 14 other broker-dealers and one affiliated investment advisor for using messaging apps to communicate official business.

FINRA Elaborates on New Fine on UBS Securities

According to FINRA, during the stated period, UBS Securities through its alternative trading system, UBSA, released 41 monthly reports “that contained inaccurate order and execution quality statistics for covered orders.” This contravened Rule 605 of the Regulation National Market System (NMS) which requires broker-leaders to publish standardized monthly electronic reports of statistical information concerning the execution of covered orders they receive.

“Due to a coding error, UBSA’s Rule 605 execution quality statistics were derived from the ‘parent’ orders originated at UBS-S’s broker-dealer, instead of the resulting 'child’ orders that UBSA received,” FINRA added.

Watch the recent FMLS22 session on predictions for financial regulation in 2023.

Furthermore, the private regulator noted that UBS Securities improperly excluded execution quality statistics for covered smaller or ‘child’ orders that originated as non-covered large or ‘parent’ orders and whose covered ‘child’ orders were routed to UBSA.

“As a result, from September 2015 through January 2019, the firm’s monthly UBSA Rule 605 reports significantly underreported the number of covered orders and related shares it received, executed, and cancelled,” FINRA explained, adding that the broker-dealer as a result of a separate “coding error” double counted the number of canceled shares for certain covered orders processed between September 2015 and January 2018.

“This resulted in UBS-S overreporting a portion of all covered cancel shares in the UBSA Rule 605 reports from September 2015 through January 2018,” FINRA said.

Moreover, the regulator noted that UBS Securities’ supervisory system was not reasonably designed to comply with Rule 605 of Regulation NMS as its sample of covered orders for supervisory reviews “was unreasonably small.”

“UBS-S also failed to reasonably investigate and act upon evidence of Rule 605 reporting deficiencies. UBS-S discovered the coding error relating to 'parent' and 'child' orders in September 2017 but did not correct the error until February 2019, 17 months after UBS-S became aware of this coding error,” FINRA explained.

The Financial Industry Regulatory Authority (FINRA) has slammed another fine on New York-based securities broker, UBS Securities (UBS-S). This time the self-regulatory organization hit the firm, which is the brokerage arm of the Swiss banking group, UBS, with a censure order and fine of $475,000 for publishing “inaccurate” monthly statistics on execution of its covered orders between September 2015 and January 2019.

Details of the new fine, which UBS Securities has agreed to pay without admitting or denying the allegations, are contained in a Letter of Acceptance, Waiver and Consent (AWC) filed by the broker and accepted by FINRA on February 3.

The new action comes four months after the private industry regulator, which supervises brokerage firms in the United States, slapped a $2.5 million fine on UBS Securities for routing or executing over 73,000 ‘naked’ shorts sales between 2009 and 2018. Additionally, the United States Securities and Exchange Commission recently fined UBS Securities $125 million alongside 14 other broker-dealers and one affiliated investment advisor for using messaging apps to communicate official business.

FINRA Elaborates on New Fine on UBS Securities

According to FINRA, during the stated period, UBS Securities through its alternative trading system, UBSA, released 41 monthly reports “that contained inaccurate order and execution quality statistics for covered orders.” This contravened Rule 605 of the Regulation National Market System (NMS) which requires broker-leaders to publish standardized monthly electronic reports of statistical information concerning the execution of covered orders they receive.

“Due to a coding error, UBSA’s Rule 605 execution quality statistics were derived from the ‘parent’ orders originated at UBS-S’s broker-dealer, instead of the resulting 'child’ orders that UBSA received,” FINRA added.

Watch the recent FMLS22 session on predictions for financial regulation in 2023.

Furthermore, the private regulator noted that UBS Securities improperly excluded execution quality statistics for covered smaller or ‘child’ orders that originated as non-covered large or ‘parent’ orders and whose covered ‘child’ orders were routed to UBSA.

“As a result, from September 2015 through January 2019, the firm’s monthly UBSA Rule 605 reports significantly underreported the number of covered orders and related shares it received, executed, and cancelled,” FINRA explained, adding that the broker-dealer as a result of a separate “coding error” double counted the number of canceled shares for certain covered orders processed between September 2015 and January 2018.

“This resulted in UBS-S overreporting a portion of all covered cancel shares in the UBSA Rule 605 reports from September 2015 through January 2018,” FINRA said.

Moreover, the regulator noted that UBS Securities’ supervisory system was not reasonably designed to comply with Rule 605 of Regulation NMS as its sample of covered orders for supervisory reviews “was unreasonably small.”

“UBS-S also failed to reasonably investigate and act upon evidence of Rule 605 reporting deficiencies. UBS-S discovered the coding error relating to 'parent' and 'child' orders in September 2017 but did not correct the error until February 2019, 17 months after UBS-S became aware of this coding error,” FINRA explained.

About the Author: Solomon Oladipupo
Solomon Oladipupo
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About the Author: Solomon Oladipupo
Solomon Oladipupo is a journalist and editor from Nigeria that covers the tech, FX, fintech and cryptocurrency industries. He is a former assistant editor at AgroNigeria Magazine where he covered the agribusiness industry. Solomon holds a first-class degree in Journalism & Mass Communication from the University of Lagos where he graduated top of his class.
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