According to FINRA, Nomura Securities International, Inc. was fined $625,000 and required to comply with undertakings for violating Rule 200(f) of Regulation SHO by improperly including securities positions of two affiliates when calculating the net positions of an independent trading unit.

The firm's violations centered on improper aggregation of trading positions. Nomura included accounts of two affiliated foreign broker-dealers in calculations of an aggregation unit's net positions. However, these affiliates lacked self-regulatory oversight and were not subject to Securities and Exchange Commission examination—critical requirements for inclusion in aggregation unit netting under Rule 200(f).

By including these prohibited affiliates' accounts in the aggregation unit's net positions, Nomura failed to accurately calculate net positions, failed to accurately mark some sales as long or short, and failed to locate securities for some short sales where required. These failures undermine Regulation SHO's purpose of preventing abusive short selling practices and ensuring market integrity.

What makes this case particularly egregious is the firm's prolonged delay in remediation despite having knowledge of the violations. By at least 2016, Nomura became aware that Rule 200(f) did not permit inclusion of its two affiliated foreign broker-dealers in aggregation unit netting. However, the firm failed to take reasonable steps to remedy the problem in a timely manner.

Nomura began working to remove the affiliates' accounts from the aggregation unit in 2016, but this work stopped in 2017. The firm did not restart remediation efforts until FINRA raised the issue in 2019, and did not complete the work until April 2022—approximately six years after becoming aware of the problem. This extended period of non-compliance demonstrates a troubling failure to prioritize regulatory compliance.

The firm's supervisory failures enabled these violations to persist. Nomura's supervisory system and written procedures were not reasonably designed to achieve compliance with Rule 200(f). The firm's procedures failed to require exclusion of entities lacking self-regulatory oversight and not subject to SEC examination from aggregation unit netting.

Regulation SHO exists to prevent naked short selling and other abusive practices that can manipulate markets and harm investors. Proper calculation of net positions and accurate marking of sales as long or short are essential to these protections.