FINRA Penalizes ACS Execution Services for Alleged Violations of Regulation SHO

ACS Execution Services LLC has 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 an agency, net or risk-free principal basis based on instructions received. If a firm receives a short sale order from a client who is trading on a net basis, it executes a primary short sale order (or order) of the same security on an exchange or other execution venue and then executes the order by purchasing the security as principal at a different price .

When trading in this way, two short sales occur: ACS accepts a short sale order from its client, the broker-dealer, and ACS executes the short sale order for its own account.

From June 2017 to the present, ACS erroneously believed that it could rely on the broker-dealer’s client location to facilitate net trading when conducting proprietary short sales. As a result, ACS engaged in at least 10 million short sales on its own account to facilitate net short selling orders, without lending securities, without entering into a bona fide securities lending agreement or without having a reasonable basis to believe that securities may be loaned so that they can be delivered on the delivery date.

Accordingly, defendant violated SHO Rule 203(b)(l) and the 2010 FINRA Rule.

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 location requirements of Rule 203.

In addition to the fine, the company agreed to a vote of no confidence.