Clearpool Execution Services
The findings stated that the firm incorrectly believed that it did not have to obtain a locate, so long as its clients obtained locates for their short sale orders. While trading as riskless principal, the firm, upon receipt of a client short sale order, effected a principal short sale in the same security on an exchange or other execution venue and then satisfied the client order by buying the security as principal at the same price.
However, the firm had a separate locate obligation with respect to the short sales it effected for its own account. The firm effected the short sale orders for its own account without borrowing the securities, entering into bona-fide arrangements to borrow the securities, or having reasonable grounds to believe that the securities could be borrowed so that they could be delivered on the date delivery was due.
The findings also stated that the firm reported short sale transactions to the FINRA/ New York Stock Exchange (NYSE) trade reporting facility without a short sale indicator. When the firm satisfied client short sale orders as riskless principal, it bought securities from a client that was selling short. The firm incorrectly believed a short sale indicator was not required in this circumstance.
The findings also included that the firm violated section 17(a) of the Exchange Act and Rule 17a-3(a)(1) thereunder by failing to maintain accurate blotters of its purchases and sales of securities. When the firm purchased a security from its client to satisfy a client sale order, it inaccurately recorded the execution of a client sale order, rather than a purchase for its own account. Likewise, when the firm sold a security to its client to satisfy a client buy order, it inaccurately recorded the execution of a client buy order, rather than a sale for its own account.
