NEW YORK, July 31 /PRNewswire/ -- The American Stock Exchange? (Amex?)today announced two final disciplinary actions for violations of Securitiesand Exchange Commission (SEC) Regulation SHO short sale rules in connectionwith trading activity in threshold securities, which occurred on variousoptions and equity exchanges. In the first action, Scott H. Arenstein andhis firm SBA Trading, agreed to a fine of $3.6 million, disgorgement of$1.4 million in trading profits, a censure and a five-year suspension fromAmex membership in any capacity, including employment or association withan Amex member or member organization during such period. In the secondaction, Brian A. Arenstein and his firm ALA Trading, LLC agreed to a fineof $1.2 million, disgorgement of $1.8 million in trading profits, a censureand a five-year suspension from Amex membership in any capacity, includingemployment or association with an Amex member or member organization duringsuch period. SEC Regulation SHO generally requires market participants to locateshares to borrow prior to effecting a short sale transaction. However,options market makers receive a limited exemption from this requirementwhen selling an underlying equity security short to hedge options positionsestablished during the course of bona fide options market making activity. Despite the fact that neither respondent was acting as a bona fideoptions market maker in the particular securities in question, each of themimproperly utilized this market maker exemption to impermissibly engage innaked short selling by failing to locate securities to borrow and thenengaged in a series of close out transactions designed to circumvent hisRegulation SHO delivery obligations in such securities by creating theappearance of a bona fide repurchase of the securities he initially soldshort. As a result of this violative trading activity, they were able tomaintain impermissible naked short positions in a number of Regulation SHOthreshold securities for a virtually unlimited period of time. "Regulation SHO is a critically important framework of regulatoryrequirements designed to prevent and deter abusive short selling and reducepersistent fails to deliver. The respondents' circumvention of theserequirements was egregious and improperly contributed to persistent failsto deliver in certain Regulation SHO threshold securities," said ClaudiaCrowley, Senior Vice President and Chief Regulatory Officer of the Amex."This settlement should send a strong message to other market participantsthat trading which involves the improper use of the Regulation SHO marketmaker locate exemption and circumvention of the requisite deliveryobligations are unacceptable and will result in serious sanctions." Scott H. Arenstein, SBA Trading, Brian A. Arenstein and ALA Tradingconsented to findings that they violated SEC Rule 203, Article V, Sections4(h) and (i) of the Amex Constitution and Amex Rule 958 - ANTE. In settlingthese matters the respondents neither admitted nor denied the charges. This violative activity was detected and investigated by the FinancialIndustry Regulatory Authority (FINRA), formerly the NASD, acting on behalfof the Amex's Regulatory Division. The Decisions and related Stipulations of Facts and Consent to Penaltycan be viewed at the following link:
American Stock Exchange Announces Two Disciplinary Actions for Violations of Regulation SHO Short Sale Rules
August 08, 2007, 1:08 a.m. EDT 3 Min Read
