NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.

UBS Securities LLC
AWC/2010022093601

UBS failed to reasonably supervise a junior trader on its Fixed Income Emerging Markets Latin American desk (the LatAm desk) who, by various means, made false and inaccurate entries into the firm’s trading systems for non-deliverable forward (NDF) transactions and bond transactions, which caused incorrect calculations of his risk positions and profit and loss (P&L), overstating his profits and understating his losses; in contrast to other traders on the LatAm desk, the firm gave the junior trader authority to enter NDF transactions directly into internal trading systems.

In each instance, the junior trader’s presumed goal was to conceal an unrealized loss associated with an actual transaction and/or create the appearance of a fictitious profit in connection with both actual and fictitious transactions, and by manipulating these trading systems, the junior trader was able to make undetected amended, late, mispriced and fictitious NDF transactions by which he concealed more than $28 million in trading losses.

The firm’s existing policies and procedures did not adequately address the junior trader’s ability to make entries directly into the trading systems; the firm’s electronic supervisory system did not capture NDF trade data, and the firm failed to establish supervisory systems or procedures to reasonably ensure that the junior trader’s entries were complete and accurate and that his trading system entries matched.

The firm likewise failed to establish policies and procedures providing for its creation and maintenance of required books and records of NDF transactions entered for its account, and failed to have written supervisory procedures, for the amending, settling and confirming of NDF transactions.

The junior trader concealed losses to the firm of approximately $700,000 through various false entries made in the firm’s Bloomberg system, and the firm’s electronic supervisory system did not capture his bond data.

The firm failed to provide the junior trader’s supervisor with reports concerning the junior trader’s trading in NDF and certain bonds that were necessary to supervise the junior trader’s activities, and it failed to make and keep current a memorandum of each NDF transaction the junior trader entered. Moreover, based on false, delayed and fictitious entries the junior trader made in connection to his NDF and certain bond transactions, the firm’s records of his and the LatAm Desk’s overall P&L and corresponding risk positions were not accurate. Furthermore, when the issues concerning the junior trader’s trading came to light, the firm conducted an internal investigation to identify the errant bond and NDF transactions and calculate the losses incurred in connection with them; thereafter, the firm instituted remedial measures to prevent a recurrence in the future.

UBS Securities LLC : Censured; Fined $600,000

Tags: Supervision