UBS fined for role in short sale profiteering

UBS has been fined $12 million (SFr10.5 million) in the United States for improperly helping traders cash in on falling share prices during the financial crisis.

This content was published on October 26, 2011 - 10:03 and agencies

A branch of the Swiss bank was criticised by a US brokerage regulator for a “systemic” failure to properly handle millions of orders that breached a ban on so-called naked short selling.

In short sales, investors borrow securities from a third party and sell them, hoping the prices will fall so they can repurchase the securities later at the lower price and pocket the difference.

In 2005 the US banned naked short selling, where the investor fails to borrow the securities first or to take steps to ensure that they can get hold of them.

The US Financial Industry Regulatory Authority (Finra) found that between 2005 and 2008 UBS’s Securities LLC broker-dealer unit had likely processed “tens of millions” of short sales without making sure that the underlying securities could be located.

UBS said it had made changes to systems and procedures that were designed to prevent a recurrence of the violations. The bank did not admit wrongdoing in agreeing to settle and also accepted a censure.

Short selling is viewed by many observers as a valuable tool for ironing out market fluctuations during normal trading conditions. But regulators fear that abuses can distort markets, particularly during volatile periods, and accelerate declines in share prices.

Some traders have also been strongly criticised for unethically reaping huge profits as ordinary shareholders saw their assets fall through the floor during the financial crisis.

The short selling of government bonds in the European Union has been heavily regulated. In August, four member states banned such trades altogether in banks and other financial institutions.

In compliance with the JTI standards

In compliance with the JTI standards

More: SWI certified by the Journalism Trust Initiative

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