Wedbush Securities Inc.
The findings stated that the firm failed to timely close out fail to deliver (FTD) positions due to the firm failing to timely borrow shares, recall shares that were out on loan or otherwise acquire shares and deliver them in accordance with the requirements of Rule 204(a).
In addition, on certain occasions, the firm failed to place a security in which it had failed to obtain a close-out into the penalty box, as required by Rule 204(b) and to send the notice that the firm had a position in any equity security that had not been closed out, as required by Rule 204(c).
The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with Rules 204(a) and (c).
The firm’s system for complying with Rule 204(a) first relied on an automated in-house system to attempt to borrow or recall shares necessary to effectuate a close-out, and then, when the firm did not obtain such shares, on a manual process to obtain the shares. However, the firm’s WSPs included only summary instructions to close out FTDs and failed to offer reasonable guidance on the steps that firm staff needed to take to execute buy-ins if the automated process did not result in closing an FTD. The firm also failed to effectively delegate responsibility for ensuring that it was closing out each FTD.
The firm was on notice that its process for closing out FTDs was unreasonable because in prior FINRA exams, FINRA identified FTDs to the firm that were not properly closed out, which the firm acknowledged, but the firm failed to institute effective remedial measures to its supervisory system in response to these red flags.
In addition, the firm did not maintain any WSPs for complying with Rule 204(c).
