UBS Securities LLC
The findings stated that the firm organized the accounts used by its traders into aggregation units (AGUs) based on trading strategy and without regard to whether the accounts were owned by a foreign affiliate.
The firm automatically netted the securities positions in the trading accounts of each AGU—including the foreign affiliate accounts—to calculate the AGU net position, which it then used to determine whether the AGU’s sale orders should be marked long or short. However, the foreign affiliate’s positions should not have been included in the firm’s AGU net positions because it was not subject to examination by the Securities and Exchange Commission (SEC). As a result, the firm did not accurately calculate the net positions of, or assess long and short sales by, four AGUs.
The findings also stated that the firm’s supervisory system and written procedures were not reasonably designed to achieve compliance with Rule 200(f) of Regulation SHO of the Securities Exchange Act of 1934 (Exchange Act). The firm’s supervisory system, including its written procedures, failed to require the exclusion of foreign affiliate accounts used by the firm’s traders from the net positions of its AGUs.
The firm determined, based on prior FINRA disciplinary actions involving improper inclusion of certain affiliate accounts in AGUs’ net positions, that it needed to remove the foreign affiliate accounts from its AGUs. The firm failed, however, to take reasonable steps to implement these changes in a timely manner. The firm began to work on a remediation plan for removing affiliate accounts from its AGUs’ net positions. However, the firm improperly added another foreign affiliate account to its AGUs. Only after FINRA raised the issue directly with the firm did it remove the foreign affiliate accounts from its AGUs’ net positions. The firm removed the accounts over the course of eight months. The firm provided AGU supervisors with separate monthly reports listing AGU accounts and non-AGU foreign affiliate accounts and instructed them to review the reports as part of their monthly AGU reviews. However, the firm failed to update its written procedures to prohibit the inclusion of foreign affiliate accounts in the net positions of its AGUs and to require supervisors to verify that only firm accounts were included in AGUs.
