FINRA Fines Morgan Stanley $500,000 for Supervisory Lapses

Morgan Stanley Censured & Fined

According to FINRA, Morgan Stanley has agreed to pay $500,000 to the Financial Industry Regulatory Authority and restore $103,219 to investors for improperly executing trades of preferred securities.

The letter of acceptance, waiver and consent posted on Finra’s enforcement website on Tuesday states that the violations, which Morgan Stanley neither admitted nor denied, ranged from routinely recording incorrect times for receiving orders and executing exchange-traded preferreds to exempting over-the-counter preferred orders from a rule requiring customer orders to have priority over proprietary trade executions.

In some cases, Morgan Stanley reportedly also failed to find the best price for preferred security orders in the inter-dealer market, according to the consent letter.

The largest part of the fine implicated supervisory system lapses that reportedly led not only to poor executions but in some cases to the failure to report trades to FINRA’s centralized Trade Reporting Facility. The findings, which also include a censure against the firm, involve violations that occurred between January 2012 and the beginning of 2015.

Apparently, some of Morgan Stanley’s alleged rule violations originated with so-called verbal trades in which a financial advisor would aggregate orders from different customers in response to being shown an offer from the firm’s exchange-listed preferreds trading desk, according to the findings. Advisors would reportedly designate the orders as “Not Held,” without instructions from customers, in order ensure they could be executed at the price offered by the trading desk. “Not Held” orders were excluded from the firm’s supervisory system review.

Morgan Stanley also allegedly viewed that the over-the-counter preferred securities were exempt from FINRA’s order-protection rule, according to the consent letter.

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This information, which is publicly available on FINRA’s website, has been provided by The White Law Group.

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