Wilson-Davis & Company, a Salt Lake City, UT-based broker-dealer, agreed to pay over $310,000 in disgorgement, prejudgment interest and penalties to settle SEC charges that it committed repeated violations of Reg SHO and Rule 15c3-5 of the Exchange Act with regard to its proprietary trading.

BACKGROUND.   WDCO, a FINRA member since 1968, has its principal place of business in Salt Lake City, UT, with operations in several satellite offices. Among other things, the firm engages in OTC market making and proprietary trading. And, according to FINRA BrokerCheck, this firm has a long regulatory track record - prior to this SEC sanction, the firm was cited for 47 final and 3 pending regulatory sanctions.

VIOLATIONS OF REG SHO, PER THE SEC.    From at least November 2011 through May 2013, WDCO willfully violated Regulation SHO by taking advantage of the bona-fide market making exception to the “locate or borrow” requirement for short sales in Rule 203(b)(2)(iii) without being entitled to rely on the exception.

Rule 203(b)(1) of Regulation SHO requires a broker-dealer, prior to effecting a short sale in an equity security for its own account, to borrow a security or locate a source of borrowable securities that can be delivered on the date that delivery is due, and document such locate.

Rule 203(b)(2)(iii) provides a limited exception to the locate or borrow requirement for short sales effected by a market maker in connection with bona-fide market making activities in the securities for which the exception is claimed.

During the relevant time, WDCO considered most its proprietary trading to be bona-fide market making activity and relied on the bona-fide market making exception in Rule 203(b)(2)(iii) – however, much of WDCO’s trading was not, in fact, bona-fide market making. As a result, WDCO violated Regulation SHO and was required to disgorge profits on these trades.

VIOLATIONS BY OF MARKET ACCESS RULE 15c3-5 PER THE SEC.    During the years 2012, 2013, and 2014, WDCO also willfully violated Section 15(c)(3) of the Exchange Act and Rule 15c3-5 by failing to maintain adequate risk management controls and supervisory procedures over the orders placed by its proprietary traders.

In addition, the SEC found that the firm failed to regularly review the effectiveness of its the risk management controls and supervisory procedures under Rule 15c3-5(e) – which included the execution of the required CEO certifications.