Southwest Securities Inc., the Dallas-based brokerage fined this month over payments to municipal-bond advisers, will pay $650,000 to resolve claims over improper short sales that caused a $6.3 million loss for the firm.
Southwest Securities Inc., the Dallas-based brokerage fined this month over payments to municipal-bond advisers, will pay $650,000 to resolve claims over improper short sales that caused a $6.3 million loss for the firm, the Financial Industry Regulatory Authority said.
The brokerage's deficiencies in “due diligence, risk assessment and written supervisory procedures” permitted a correspondent firm, Cutler Securities, to establish a 2.5 million share short position on a stock, creating an unsecured debit balance that it was unable to cover, Finra said today in a statement. That left Southwest to meet the obligation.
“Southwest's systemic failures in overseeing its clearing services led to considerable financial losses for itself, and illustrates the risks that can be created by correspondent firms,” Finra enforcement chief Brad Bennett said in the statement. “Southwest's failure to effectively monitor Cutler's reckless behavior jeopardized its ability to meet its obligations to its other correspondent firms and counterparties.”
Finra expelled Cutler Securities and barred its president, Glenn Cutler, over the short-sale violations, according to the statement. Southwest and Cutler resolved the claims without admitting or denying wrongdoing, Finra said.
Southwest, a unit of SWS Group Inc., was fined $500,000 by Finra on March 7 for violating regulations including a ban on paying outside consultants to win municipal-bond work, a rule meant to stem influence-peddling in local-government bond deals.
--Bloomberg News--
