Nov 10 (Reuters) - UBS AG was charged by the U.S. Securities and Exchange Commission with faulty recordkeeping related to short-sale orders, and settled by agreeing to pay an $8 million fine and to retain an independent consultant.
Thursday's settlement follows the Swiss bank's agreement last month to pay a $12 million fine, the largest of its type, to settle charges related to short sales by the Financial Industry Regulatory Authority.
Both regulators charged UBS with violating Regulation SHO, a 2005 SEC rule designed to thwart abusive "naked" short selling, and ensure that brokerages can deliver shares on short-sale transactions they process.
Short sales occur when investors sell securities they do not own, hoping the prices will fall so they can repurchase the securities later at a lower price, replenish their lenders and pocket the difference as profit.
Naked short sales occur when investors do not first borrow the underlying shares or make sure they can be borrowed. The practice is not always illegal in the United States.
In an order settling administrative proceedings, the SEC said that since at least 2007, UBS employees routinely recorded having confirmed with lenders when shares were available for short sales -- known as "locates" -- when no one had done so.
As a result of these "pervasive" violations, UBS sourced "thousands of locates" to lender employees who were out of the office and could not have confirmed that shares were available for shorting, the order said.
"Regulators must be able to rely on a firm's records to mean what they say, especially when those records are meant to provide the key evidence of a firm's compliance with the law and safeguard against illegal short selling," George Canellos, director of the SEC's New York office, said in a statement.
The consultant will conduct a comprehensive review of UBS' policies in granting "locate" requests, and the bank will adopt changes that the consultant may recommend, the order said.
UBS spokesman Christiaan Brakman said the bank was pleased to settle, and has "implemented enhancements to its securities lending desk's procedures and systems."
The bank did not admit or deny wrongdoing in settling with the SEC. It also agreed to a censure and not to make similar future violations. UBS previously agreed to a FINRA censure.
(Reporting by Jonathan Stempel)
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