MutualFundWire.com: Finra Attacks Over Naked ETF Redemptions

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Tuesday, March 22, 2016

Finra Attacks Over Naked ETF Redemptions

Finra just fined a clearing firm $675,000 for its role in a naked ETF redemption scandal. The case is the first of its kind from the self-regulatory agency.

Thomas Gira
Finra
Executive Vice President and Head of Market Regulation

Yesterday Thomas Gira, executive vice president and head of market regulation at Finra, unveiled the censuring of Wedbush Securities. The scandal centers around a Wedbush broker-dealer client, Scout Trading. As an authorized participant, Scout could create and destroy ("redeem" in industry speak) ETF shares, and Finra and the Nasdaq claim that, between January 2010 and March 2012, Scout "routinely submitted 'naked' redemption orders in ETFs to Wedbush, meaning Scout Trading was insufficiently long in the ETF shares comprising the redemption orders."

MFWire could not immediately reach a Wedbush spokesperson for comment on the settlement.

The Wedbush settlement comes a year after Nasdaq censured Scout, to the tune of a $3-million fine.

As is often the case, both Wedbush in the new case and Scout in the one a year ago "neither admitted nor denied the charges" as part of their settlements.

Just how big was the scandal? Finra estimates that, over the two-year period in question, "Scout Trading submitted at least 255 naked redemption orders through Wedbush in 11 ETFs, totaling over 295 million shares."

Printed from: MFWire.com/story.asp?s=53692

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