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FINRA Issues Guidance on Reporting Interest Positions Held in Master/Sub-Accounts or Parent/Child Accounts

On December 6, the Financial Industry Regulatory Authority (FINRA) issued a notice to reiterate that firms must report short positions in each individual firm or customer account on a gross basis under FINRA Rule 4560 (Short-Interest Reporting).

FINRA Rule 4560 requires firms to maintain a record of total “short” positions in all customer and proprietary firm accounts and to regularly report such information to FINRA. Under the rule, member firms must record and report all gross short positions existing in each individual firm or customer account, including the account of a broker-dealer, that resulted from either a “short sale” (defined in Rule 200(a) of Regulation SHO), or where the transactions that caused the short position were marked “long” due to the firm’s or the customer’s net long position at the time of the transaction.

The notice provides that firms must report short interest in each individual firm or customer account—including each sub- or child account—on a gross, as opposed to net, basis, (e.g., not netted against the other sub- or child accounts). Further, the notice provides that regardless of whether sub- or child accounts share the same beneficial owner, or whether the firm has actual or inquiry notice of common ownership, the firm is required to report gross short positions existing in each individual customer account.

©2018 Katten Muchin Rosenman LLP

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About this Author

Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange...

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Timothy Nolan, Katten Law Firm, Chicago, Corporate Law Attorney
Associate

Timothy Nolan concentrates his practice on transactional, corporate and regulatory aspects of financial services matters. Timothy is able to provide legal services to a wide variety of clients, including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Timothy served as the CEO and the president of the board of directors of a small commercial real estate company and spent 10 years in the scrap recycling industry, including several years as general manager of a mid-sized company. In his time in the scrap recycling industry, Timothy worked with traders, brokers, importers and exporters, and other industry professionals around the world relating to ferrous, non-ferrous and precious metal recycling, together with paper and plastic recycling.

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