Options Express charges filed

Ah geez, I hate this kind of thing.

SEC Charges OptionsXpress With Naked Short Selling

http://www.fa-mag.com/fa-news/10643-sec-charges-optionsxpress-with-naked-short-selling.html

Don

 

"Specifically, from Jan. 1, 2010 to Jan. 31, 2010, optionsXpress customers including Feldman (a client) accounted for an average of 47.9 percent of the daily trading volume in one of the securities. In 2009 alone, the optionsXpress customer accounts engaging in the activity purchased approximately $5.7 billion worth of securities and sold short approximately $4 billion of options. In 2009, Feldman himself purchased at least $2.9 billion of securities and sold short at least $1.7 billion of options through his account at optionsXpress, the SEC says."

All I can say is WOW ! Almost half of the volume for a security ... it's a shame they don't tell what he was shorting.

 

Good. Another set of douchebags out of the way...

 

The article leaves out anything about the actual naked short selling.

Implies that writing options is "bad / illegal"

Buy stock, sell options, go to prison?

 

Read more here.

http://sec.gov/litigation/admin/2012/33-9313.pdf

See the section titled "Rule SHO" for more info on why the reset transactions constitute a violation.

3. The sham resets were accomplished by optionsXpress facilitating its customers buying shares and simultaneously selling deep in-the-money call options that were essentially the economic equivalent of selling shares short. The purchase of shares created the illusion that the firm had satisfied the close-out obligation; however, the shares that were ostensibly purchased in the reset transactions were never actually delivered to the purchasers because on the same day the shares were “purchased,” the deep in-the-money calls were exercised, thereby effectively reselling the shares.

4. These paired reset transactions were not bona fide purchases because their purpose was to perpetuate an open short position while giving the illusion of satisfying the delivery and close-out requirements of Reg. SHO. These sham transactions thus allowed optionsXpress and its customers to engage in what amounts to a stock-kiting scheme that deprived true stock purchasers of the benefits of ownership.

 

Exercise a call to sell shares? Wow.

 

These SHO violation cases are becoming more common. The penalties vary.

In 2011, FINRA fined UBS $12 million for SHO violations. This was the largest FINRA fine of 2011.

http://www.finra.org/Newsroom/NewsReleases/2011/P124806

In February 2012, Interactive Brokers paid a $57,000 FINRA fine related to SHO.

In March 2012, Timber Hill paid a $15,000 FINRA fine for SHO violations

Ref:

UBS:

As a result of its supervisory failures, many of UBS' violations were not detected or corrected until after FINRA's investigation caused UBS to conduct a substantive review of its systems and monitoring procedures for Reg SHO compliance. FINRA found that UBS' supervisory framework over its equities trading business was not reasonably designed to achieve compliance with the requirements of Reg SHO and other securities laws, rules and regulations until at least 2009.

In concluding this settlement, UBS neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

IB:

Interactive Brokers LLC (CRD #36418, Greenwich, Connecticut) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $57,500. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it had fail-to-deliver positions at a registered clearing agency in threshold securities for 13 consecutive settlement days, and failed to immediately thereafter close out the fail-to-deliver positions by purchasing securities of like kind and quantity. The findings stated that the firm transmitted reports to OATS that contained an inaccurate account type code, inaccurate special handling codes and/or incorrectly marked an order as long. (FINRA Case #2007010465601)

Timber Hill:

Timber Hill LLC (CRD #33319, Greenwich, Connecticut) submitted a Letter of Acceptance, Waiver and consent in which the firm was censured and fined $15,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it executed short proprietary sale orders in equity securities and failed to properly mark the orders as short, and executed some long proprietary sale orders in equity securities and improperly marked the orders as short. The findings stated that the firm accepted short sale orders in an equity security from another person, or effected a short sale in an equity security for its own account, without borrowing the security, or entering into a bona fide arrangement to borrow the security, or having reasonable grounds to believe that the security could be borrowed so that it could be delivered on the date delivery is due, and documenting compliance with SEC Rule 203(b)(1) of Regulation SHO. The findings also stated that the firm had a fail-to-deliver position at a registered clearing agency in a threshold security for 13 consecutive settlement days and failed to immediately thereafter close out the fail-to-deliver position by purchasing securities of like kind and quantity. The findings also included that the firm’s supervisory system did not provide for supervision reasonably designed to achieve compliance with Rule 203(a) of Regulation SHO, in that the firm did not have WSPs in place related to Rules 200(a) and 203(a) of Regulation SHO. The written supervisory system also did not provide for supervision reasonably designed to achieve compliance with Rule 203(b)(1), in that the firm’s supervisory system did not provide a means to determine that there were sufficient shares available for borrowing for the equity securities identified on its easy-to-borrow lists. The firm’s written supervisory system was not reasonably designed to achieve compliance with Rule 203(b)(3) of Regulation SHO, in that the firm’s supervisory system did not include WSPs providing for review of the steps taken by the firm’s trading personnel in closing out its fail-to-deliver positions, and the firm failed to provide documentary evidence that it performed the supervisory reviews set forth in its WSPs concerning Rule 200(g) of Regulation SHO. (FINRA Case #2005003200701)

 

They go after these small trades.... How about they look at JPM's massive silver short position?

Pathetic.

 

1) you know about this how...?
2) Is it now a violation to be short silver...?

 

The (so called) "trades" aren't small, and the (so called) "traders" are thieves (if the facts are as alleged).