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Regulation and Compliance > Federal Regulation > FINRA

Morgan Stanley to Pay $875K Fine for Bad Trade Data

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Morgan Stanley’s New York headquarters (Photo: Bloomberg)

Morgan Stanley has agreed to pay an $875,000 fine for providing inaccurate securities trading information, known as “blue sheet data,” as part of a settlement with the Financial Industry Regulatory Authority, according to the regulator.

“From February 2014 through April 2017, Morgan Stanley submitted at least 869 inaccurate blue sheets” to FINRA and the Securities and Exchange Commission, “misreporting information on at least 156,678 options transactions,” FINRA alleged.

In the process, Morgan Stanley violated the Securities Exchange Act and FINRA Rules 8211, 8213 and 2010, according to FINRA.

Without admitting or denying the findings, Allison Patton, Morgan Stanley managing director and head of retail litigation, on June 25 signed a FINRA letter of acceptance, waiver and consent, agreeing to pay the fine. FINRA accepted the offer Wednesday.

“We are pleased to have resolved this matter and have corrected these historical issues,” a Morgan Stanley spokeswoman said Thursday.

“FINRA first discovered Morgan Stanley’s blue sheet errors in late 2016, when blue sheet information submitted by Morgan Stanley proved to be inconsistent with information reflected in customer account statements,” FINRA said in the AWC letter.

In the case of two purchase and two sales transactions, the blue sheet submission indicated that a customer closed his options position (they were marked “buy close” and “sell close”), when in fact the transactions opened his options position (and should have been marked “buy open” and “sell open”), according to the regulator.

“Morgan Stanley determined that human error had caused these errors” and the errors were “repeated in additional blue sheet submissions,” FINRA said, adding: “In total, this error caused the Firm to submit 107 inaccurate blue sheet submissions to FINRA (misreporting 6,305 options trades as closing transactions) and 518 inaccurate blue sheets submitted to SEC (misreporting 102,262 options trades as closing transactions).”

The regulator, however, “subsequently identified different inconsistencies between blue sheet submissions and other documents that led to the discovery of two separate computer coding issues that caused the Firm to incorrectly report whether options transactions opened or closed positions,” FINRA alleged.

“One coding error — related to the Firm’s money manager programs — had caused Morgan Stanley’s blue sheets to report all options trades as closing trades,” FINRA said, adding: “As a result, the Firm submitted 34 inaccurate blue sheet submissions to FINRA (misreporting approximately 2,790 options trades as closing transactions) and 210 inaccurate blue sheet submissions to the SEC (misreporting approximately 45,321 options trades as closing transactions).”

The second coding error happened because Morgan Stanley’s electronic blue sheet system obtained trade data from an internal data repository that sometimes had a blank in its symbol field, FINRA alleged. That mistake had caused Morgan Stanley’s electronic blue sheet system sometimes to indicate that closing transactions were opening transactions, according to FINRA.

Because that error “occurred intermittently, the number of affected blue sheet submissions or transactions is unknown,” FINRA claimed.

Only a few days ago, broker-dealer SG Americas agreed to pay $3.1 million in fines for providing inaccurate and incomplete securities trading information, signing a letter of acceptance, waiver and consent. Half of that amount will be paid to FINRA and half to the SEC, as part of a separate SEC order.

— Check out Morgan Stanley Among Adopters of New 4U Platform: Tech Roundup on ThinkAdvisor.


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