Cantor Fitzgerald Fined $2 Million Over Short Sales Violations
- Finra also said Cantor repeatedly ignored “red flags,” including internal audit findings from its staff.
The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms doing business in the United States, has fined Cantor Fitzgerald & Co. $2 million for violating ‘naked short selling’ rules over a period of at least four years.
Short selling – which allows investors to make gains in a falling market by borrowing a security they don’t own, selling it and agreeing to buy it back at a lower price – plays an important role in developed capital markets since it makes price discovery more efficient and smooths Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term whilst providing investors with a host of Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term tools.
FINRA said Cantor’s supervisory system was not reasonably designed to achieve compliance with the federal requirements known as ‘Reg SHO’ from January 2013 through December 2017.
Regulation SHO requires firms to deliver the shares, after completion of a short sale transaction, on the settlement date or take affirmative action to close out the "failure to deliver" shares by purchasing or borrowing the securities. To limit ongoing naked short positions, the broker has no choice but to reject any additional sale orders if the securities were not delivered or closed out within legally required time frames.
Regulation SHO also prohibits the execution of short sales in covered securities at a price that is less than or equal to the best bid when the price of the security has fallen by 10 percent or more in one day.
Cantor ignored “red flags”
During that period, according to FINRA, Cantor was aware of supervisory deficiencies but did not implement remedial measures until 2016. As a result, the firm did not close out more than 4,879 fails-to-deliver in a timely manner, while it accepted and executed short orders in those securities without first borrowing (or arranging to borrow).
Wall Street’s self-regulator also said Cantor Fitzgerald repeatedly ignored “red flags,” including internal audit findings and multiple internal warnings from its staff.
The global financial services group neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. Also, Cantor has agreed to implement enhancements to meet regulatory reporting requirements and retain an independent consultant to remedy issues related to short sales, as part of its settlement with the FINRA.
The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms doing business in the United States, has fined Cantor Fitzgerald & Co. $2 million for violating ‘naked short selling’ rules over a period of at least four years.
Short selling – which allows investors to make gains in a falling market by borrowing a security they don’t own, selling it and agreeing to buy it back at a lower price – plays an important role in developed capital markets since it makes price discovery more efficient and smooths Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term whilst providing investors with a host of Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term tools.
FINRA said Cantor’s supervisory system was not reasonably designed to achieve compliance with the federal requirements known as ‘Reg SHO’ from January 2013 through December 2017.
Regulation SHO requires firms to deliver the shares, after completion of a short sale transaction, on the settlement date or take affirmative action to close out the "failure to deliver" shares by purchasing or borrowing the securities. To limit ongoing naked short positions, the broker has no choice but to reject any additional sale orders if the securities were not delivered or closed out within legally required time frames.
Regulation SHO also prohibits the execution of short sales in covered securities at a price that is less than or equal to the best bid when the price of the security has fallen by 10 percent or more in one day.
Cantor ignored “red flags”
During that period, according to FINRA, Cantor was aware of supervisory deficiencies but did not implement remedial measures until 2016. As a result, the firm did not close out more than 4,879 fails-to-deliver in a timely manner, while it accepted and executed short orders in those securities without first borrowing (or arranging to borrow).
Wall Street’s self-regulator also said Cantor Fitzgerald repeatedly ignored “red flags,” including internal audit findings and multiple internal warnings from its staff.
The global financial services group neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. Also, Cantor has agreed to implement enhancements to meet regulatory reporting requirements and retain an independent consultant to remedy issues related to short sales, as part of its settlement with the FINRA.