According to FINRA, DriveWealth Institutional LLC (formerly Cuttone & Co., LLC) was censured and fined $100,000 on January 26, 2022, for multiple violations of Regulation SHO and trade reporting requirements.

The firm violated Regulation SHO by failing to obtain locates for short sales. When receiving customer short sale orders, the firm would effect principal short sales on exchanges and then satisfy customer orders by buying the security at a different price. The firm executed these short sales without borrowing securities, entering into bona fide arrangements to borrow, or having reasonable grounds to believe the securities could be borrowed for timely delivery.

Additionally, the firm failed to report short sale transactions with the required short sale indicator because its order management system was not programmed to include this indicator for the customer side of net trades. As a result, trade reports incorrectly showed the contra-party sold long rather than short.

The firm also violated Regulation SHO's circuit breaker provisions by failing to establish adequate policies and procedures to prevent short sales during circuit breakers. The firm had no reasonable process to identify whether transactions were executed at or below the National Best Bid when circuit breakers were in effect. Furthermore, the firm improperly reported trades using incorrect modifiers.

Regulation SHO rules help prevent abusive short selling practices and maintain fair and orderly markets. The locate requirement ensures that short sellers have a reasonable basis to believe they can deliver securities on settlement, reducing the risk of settlement failures.

This case demonstrates the importance of proper system programming and supervisory procedures to ensure compliance with complex trading regulations designed to protect market integrity and investor interests.