FINRA Fines ACS Execution Services for Alleged Rule SHO Violations

ACS Execution Services LLC agreed to pay a $250,000 fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA).

ACS provides execution services to broker-dealers and executes orders on a proxy, net deal or risk-free principal basis based on the instructions it receives. When the Firm receives a short sale order from a client that trades on a net basis, the Firm executes one or more primary short sale orders in the same security on an exchange or other execution venue, then executes the order by purchasing the security. as main at a different price.

When trading in this manner, two short sales are made: ACS accepts a short sale order from its broker client and ACS completes a short sale order for its own account.

From June 2017 to the present, ACS erroneously believed that it could rely on the location of a broker client when conducting a short sale for its own account in order to facilitate net trades. As a result, ACS made at least 10 million short sales for its own account to facilitate short sale orders on a net basis without borrowing the securities, nor entering into a good faith agreement to borrow the securities, nor having reasonable grounds to believe that the securities could be borrowed in order to be delivered on the scheduled date.

Therefore, Defendant violated Rule 203(b)(l) of Regulation SHO and FINRA Rule 2010.

During the same period, ACS also violated FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system, including written supervisory procedures (WSP), reasonably designed to ensure compliance with the requirements of location of rule 203.

In addition to the fine, the company agreed to a censure.