ACS Execution Services LLC has agreed to pay a fine of $250,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
ACS provides execution services to broker-dealers and executes orders on an agency, net trade, or riskless 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 effects a principal short sale order (or orders) in the same security on an exchange or other execution venue and then satisfies the order by buying the security as principal at a different price.
When trading in this manner, two short sales are effected: ACS accepts a short sale order from its broker-dealer client, and ACS effects a short sale order for its own account.
From June 2017 to the present, ACS incorrectly believed that it could rely on a broker-dealer client’s locate when effecting a short sale for its own account to facilitate net trading. As a result, ACS effected at least 10 million short sales for its own account to facilitate short sale orders on a net basis without borrowing the securities, entering into a bona fide arrangement to borrow the securities, or having reasonable grounds to believe the securities could be borrowed so that they could be delivered on the date delivery was due.
Therefore, Respondent violated Regulation SHO Rule 203(b)(l) 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 (WSPs), reasonably designed to achieve compliance with the locate requirements of Rule 203.
On top of the fine, the firm has agreed to a censure.
