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SEC fines Cormark $800,000 (U.S.) over short sales

2020-12-22 20:09 ET - Street Wire

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by Mike Caswell

The U.S. Securities and Exchange Commission has fined Toronto brokerage Cormark Securities Inc. $800,000 for repeatedly violating rules designed to prevent naked short selling. (All figures are in U.S. dollars.) The SEC says that, for a period of over one year, Cormark allowed an unidentified hedge fund client to place sell orders when it was not clear that the hedge fund could actually produce the underlying stock. The hedge fund, which the SEC has not named, sold $660-million worth of shares through Cormark in this manner, according to the SEC.

The penalty for Cormark is contained in an administrative order that the SEC released on Monday, Dec. 21. In addition to the fine, the SEC has ordered that Cormark not commit any future violations. The penalties are the result of a negotiated settlement, in which Cormark did not admit to any wrongdoing.

The case centres around violations of Regulation SHO, the rule that the SEC introduced in 2005 to discourage naked short selling. The rule requires those placing a short sale to come up with the underlying shares by the end of a three-day settlement period. The idea is to prevent manipulative short selling, or that designed to push down the price of a stock. (There are also provisions that stop all short sales if a stock has declined by more than 10 per cent in one day.)

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