UBS Fined $3.75M For Options Reporting Failures

UBS Securities agreed to censure and a $3.75 million fine in settling accusations that it failed or inaccurately reported over-the-counter options positions for more than six years due to three different technology issues, the Financial Industry Regulatory Authority said.

The letter of acceptance, waiver and consent, released yesterday was the fifth settlement since 2014 for which UBS was censured and fined over technology glitches involving the large options reporting system (LOPR). This was the largest fine so far, as the other four fines combined totaled about $2.86 million, the letter said.

When contacted, UBS released a statement saying it was “pleased to have resolved this matter with FINRA related to technical trade reporting. These issues were fully remediated prior to the resolution of the matter.”

According to the settlement, Finra requires that member firms report large options positions through the LOPR, which allows the agency to “surveil for potentially manipulative behavior, including attempts to corner the market in the underlying equity, leverage an option position to affect the price, or move the underlying equity to change the value of a large option position.”

Accuracy in LOPR is particularly important in the OTC options market, Finra stated, because there is no other independent source of data.

From January 2010 through June 2018, UBS did not report to the LOPR positions in OTC options overlying foreign securities when it was the intermediary between U.S.-based customers and UBS foreign affiliates, the letter said. In these situations, the positions were booked to the foreign affiliates’ systems and not fed into UBS’ LOPR system. This happened in 436,000 cases.

Then, from January 2010 through September 2020, UBS made inaccurate reports to LOPR in 6.6 million instances of short-covered quantities of OTC options positions, resulting in the misreporting of most short positions as fully covered, the letter stated.

Finally, from August 2015 through September 2021, a coding issue introduced errors into UBS’s LOPR reporting for some high-net-worth clients, affecting the names and addresses in 24,446 instances, the letter said.

The settlement highlighted what Finra determined to be a failure of response to these technology-related issues.

“UBS failed to reasonably investigate and act upon red flags of LOPR reporting deficiencies,” the letter stated. “UBS identified the three reporting issues described above but unreasonably failed to correct them for several years.”

For example, in the case of not reporting OTC options positions overlying foreign securities, UBS was aware of the problem in November 2013 and self-reported the issue to Finra in November 2017, but did not correct the issue until June 2018, the letter said.

UBS identified the short-covered quantities of options positions in mid-2015 and hired a consultant to review the issue but did not try to correct the problem until mid-2019 and did not finalize a fix until September 2020.

UBS was aware of the coding issue with LOPR reporting for certain high-net-worth clients in mid-2018, but did not figure out the cause until Finra asked about it in January 2021, the letter said, adding that the remedy was not in place until September 2021.

In September, Finra fined the brokerage arm of Bank of America $5 million for similar LOPR failures. 




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