Robert W. Baird & Co. of Milwaukee, WI, agreed to a $900K fine to settle FINRA charges it failed to establish and maintain adequate supervision with regard to Regulation SHO.  Specifically, FINRA found that: 

• Baird released significant numbers of proprietary, institutional, retail and employee short sale orders for execution without valid locates;
• Baird did not correct its locate errors in a timely manner, apparently because its post-trade review did not adequately determine on a retroactive basis whether locates had been properly obtained and granted.
• Baird’s Stock Loan Department systematically failed to provide locates and/or properly document locates for short sale orders. 

        FINRA attributed Baird's problems to ... its failure to allocate adequate resources, including Stock Loan personnel, to the process of granting and documenting locates, and to its failure to adequately train Stock Loan personnel re: Reg SHO requirements.

        As a result of order entry and stock loan deficiencies ...  (i) Baird released hundreds of short sale orders for execution without obtaining and/or documenting locates;  (ii) Baird misapplied the bona-fide market maker exception to the locate requirement in connection with customer facilitation, non-bona fide market making short sales and proprietary hedge short sales;  (iii) Baird failed to disclose its market maker status on approximately 693 equity research reports involving 360 different securities in which it was a market maker.

        Extensive Reg SHO Violations allegedly due to ... Baird's patchwork of systems, pols and procedures implemented by the Firm in 2005 that contained multiple gaps and in certain instances contained incorrect instructions for compliance with Regulation SHO.  Specifically, the firm failed to designate effective compliance personnel as responsible for the firm’s overall compliance with Reg SHO.  Furthermore, the firm allegedly failed to allocate adequate resources and Stock Loan personnel to the process of granting and documenting locates, and failed to adequately train Stock Loan personnel regarding the requirements of Reg SHO, including the documentation of locate requests and approvals. 

The firm's WSP's apparently were also inadequate - in part as it related to the firm's role as a registered market maker in securities - and the related use of the market maker exception to the locate requirement.  Finally, Baird's failures impacted its research report disclosures as they pertained to the firm's market making activities.  This is FINRA Case #2008013127801.   [FINRA Disciplinary Actions for April]