Short-Interest Report

A principal discovers the firm missed a required short-interest report filing deadline under Rule 4560. What must the principal do upon discovering the miss?

1. A.File the report as soon as possible and address the underlying process failure to prevent recurrenceCorrect. A late filing must still be made, and the process failure that caused the miss should be corrected.
2. B.Wait until the next examination to disclose the missed filing to FINRAWrong. Waiting for an examination to surface the issue is not an appropriate substitute for promptly addressing the missed filing.
3. C.Take no further action since short-interest reporting has no customer protection implicationsWrong. Short-interest reporting is a required regulatory filing obligation regardless of whether it directly involves customer protection.
4. D.Skip the missed filing and simply ensure the next scheduled report is filed on timeWrong. The missed filing obligation does not simply disappear; it still needs to be addressed, not skipped.

Why: The principal must ensure the report is filed as soon as possible and address the underlying process failure that caused the deadline to be missed, to prevent recurrence -- not simply skip that reporting cycle since the deadline has already passed.

A principal preparing the firm's short-interest report includes only the short positions held in customer margin accounts, reasoning that the report exists to track customer short selling activity. What is the gap in this approach?

1. A.The short-interest report is meant to reflect the firm's total short position in each reportable security, which includes short positions the firm carries in its own proprietary accounts, not only positions held in customer accounts.Correct. The report is meant to capture the firm's total short position, including its own proprietary short positions, not just customer accounts.
2. B.There is no gap, since proprietary trading positions are reported through a completely separate regulatory filing unrelated to short-interest reporting.Wrong. Proprietary short positions are part of the firm's total short interest and are not excluded from this report by virtue of being proprietary.
3. C.The gap is that the report should also include long positions in the same securities, to give a complete picture of the firm's overall exposure.Wrong. This misapplies the report's scope; it is a short-interest report, not a general position report.
4. D.The gap is that the report should be filed more frequently than the firm's current filing cycle allows for accurate customer-position tracking.Wrong. Filing frequency is not the issue here; the issue is what positions are included in the report.

Why: The short-interest report is meant to reflect the firm's total short position in each reportable security, which includes short positions the firm carries in its own proprietary accounts, not only positions held in customer accounts.