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Nov. 10 (Bloomberg) -- A UBS AG brokerage unit will pay $8 million to resolve U.S. Securities and Exchange Commission claims that the firm used inaccurate recording practices in providing “locates” to clients seeking to execute short sales.
Since at least 2007, Zurich-based UBS Securities LLC inaccurately portrayed whether locates -- representations that a firm can borrow shares for short sales -- were based on electronic feeds or direct confirmation, the SEC said in an administrative order today. The practices obscured whether the firm had a reasonable basis for granting locates and created a risk of locates being based on unreliable lenders, the SEC said.
“Regulators must be able to rely on a firm’s records to mean what they say, especially when those records are meant to provide the key evidence of a firm’s compliance with the law,” SEC New York Regional Director George Canellos said in a statement. “UBS permitted its employees to create records that do not accurately convey the basis upon which its employees granted locates.”
UBS employees routinely recorded the name of a lender’s employee even when no one at the brokerage had actually confirmed availability, the SEC said. Investigators found that UBS employees sourced thousands of locates to lender employees who couldn’t have provided information on the days in question.
“UBS is pleased to have resolved this matter with the SEC,” Christiaan Brakman, a company spokesman, said in an e- mailed statement. “UBS has implemented enhancements to its Securities Lending Desk’s procedures and systems.”
In a short sale, an investor sells borrowed securities with the aim of profiting from a price decline by repurchasing the stock at the lower price, repaying the stock loan and pocketing the difference. The SEC’s order didn’t find that UBS executed short sales without a reasonable basis for believing that it could borrow the stock.
--Editors: Maura Reynolds, Gregory Mott
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