Ascendiant Capital Markets
Ascendiant Capital Markets, LLC was fined $35,000 for violating Rule 203(b)(1) of Regulation SHO of the Exchange Act by impermissibly relying on the market maker exception and failing to comply with the locate requirement of Regulation SHO.
The findings stated that a motor company announced that it planned to purchase a privately-held, Michigan-based tool manufacturing company. The privately-held company, however, bore a very similar name to a publicly traded company that also was a Michigan-based tool manufacturer. Because the published news did not specify which of these companies the motor company planned to purchase, many investors assumed that the motor company intended to buy the publicly-traded company and began buying shares in that company.
The firm recognized during the trading day that the news report did not reference a planned acquisition of the publicly traded company, but instead described the motor company’s intention to purchase the similarly-named privately-held company. Prior to the trading day, the firm’s market making desk had never traded in the publicly traded company. On that date, however, the firm registered as a market maker in the publicly traded company and began trading in the symbol.
Before the firm’s market making desk received an email from its institutional sales department, it submitted bids and offers in the publicly traded company relatively evenly. After receiving the email, the quoting activity decreased on the buy side and increased on the sell side. By the time trading was halted in the publicly traded company, the firm had effected 45 short sales in the publicly traded company, initiating negotiations in 40 of them and accumulated a proprietary short position of over 200,000 shares. This conduct generated $26,720 in net profits for the firm and its traders.
The findings also stated that the firm failed to enforce a system of supervision that was reasonably designed to comply with Regulation SHO by failing to follow, in connection with the transactions, the process outlined in its WSPs for verifying the applicability of the bona-fide market making exception.
