JP Morgan Securities LLC has agreed to pay a fine of USD300,000 as part of an agreement with the Financial Industry Regulatory Authority (FINRA). The agreement is the result of the company’s alleged violations of some regulations. These regulations were implemented by the Securities and Exchange Commission (SEC) regarding potentially abusive “naked” short selling. They restrict short selling in securities when the close out requirement is not satisfied unless the broker-dealer borrows or arranges to borrow the security.
According to the regulations, a broker-dealer may allocate a close out obligation to another broker-dealer and the notice of allocation must be clear. However, JP Morgan’s allocation notices do not make it clear enough that the company has allocated responsibility for liquidating deals of some introducing brokers.