According to FINRA, BGC Financial, L.P. was censured and fined $50,000 for mismarking orders under Regulation SHO and failing to establish adequate supervisory systems.

The firm failed to include two proprietary accounts in calculations of its overall net position in equity securities being sold, which caused certain orders to be mismarked as long or short under Regulation SHO Rule 200(g). The problem arose because the firm aggregated accounts into independent trading units without creating a written plan of organization as required by Regulation SHO Rule 200(f)(1). Without qualifying for independent treatment under the rules, the firm's order management system incorrectly excluded these proprietary accounts' positions when calculating the firm's net position, resulting in mismarked trades.

The supervisory failures were equally significant. BGC Financial did not take any steps to verify that its order management system was achieving compliance with Regulation SHO, such as conducting regular order-marking reviews. The firm's written supervisory procedures did not contain descriptions of any process to ensure Rule 200 compliance and did not identify any individual responsible for such compliance.

Following FINRA's cycle examination, the firm undertook remedial measures including an internal audit of trading desks, implementing new procedures for reviewing order marking, revising written supervisory procedures, and modifying procedures to include written plans of organization for the desks. This case highlights the technical but important requirements of Regulation SHO, which are designed to prevent abusive short selling practices. Even unintentional violations resulting from system design flaws can lead to significant sanctions. Firms must ensure their trading systems properly account for regulatory requirements and maintain adequate supervisory oversight.