According to FINRA, Electronic Transaction Clearing, Inc. was censured and fined $150,000 for failing to report accurate short interest position data to FINRA.

The firm failed to exclude the short interest positions of one of its customers whose account was custodied at the firm's clearing firm, resulting in duplicative and inaccurate reporting of the customer's short interest positions. Additionally, in short interest reports submitted to FINRA, the firm pulled short interest data before same day trades for a customer were settled. This caused the firm to fail to report short interest positions in some securities, under report in others, and over report in still others.

The firm also failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with the short interest reporting rules. The firm failed to program its reporting system to exclude short positions in certain accounts custodied at its clearing firm, leading to duplicative and inaccurate reporting. The firm's system also failed to include a periodic evaluation of its reporting logic to ensure that only the correct short positions were reported and that all reportable positions, including same day trades, were included.

The firm's written procedures relating to short interest failed to describe a process to reasonably supervise the firm's short interest reporting obligations. The procedures were silent as to when the automated short interest report should be generated, instead of making clear that data should be pulled after same day trades had settled. The comparison described in the procedures compared share totals but failed to match values being reported to the firm's stock record, a comparison that would have identified the inaccurate reporting.

After notification from FINRA of the inaccurate reporting, the firm revised its procedures to exclude positions custodied with and reported by its clearing firm and updated its operations guide to start the short interest report process after same day trades had settled. This case highlights the importance of accurate short interest reporting for market transparency and the need for proper system design and supervision.