FINRA fines Morgan Stanley $24,000 for mark-up failures
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The Financial Industry Regulatory Authority has fined Morgan Stanley $24,000 for failing to disclose mark-ups and mark-downs on 19,000 municipal securities transactions, part of a $400,000 total penalty the latest in a string of recent actions FINRA has taken to prosecute mark-up disclosure failures.
Morgan Stanley, which neither admitted nor denied FINRA’s findings, also failed to disclose time of execution and security specific URL links for roughly 35,000 fixed price, primary market transactions involving munis, as well as 500,000 fixed price primary market transactions involving corporate or agency debt securities, FINRA said.
The firm violated MSRB Rule G-15 on written confirmations and MSRB Rule G-27 on supervision. The firm agreed to a censure and a total fine of $400,000, $24,000 of which pertains to MSRB rule violations.
“From May 2018 through July 2022, Morgan Stanley provided non-institutional customers with confirmations that either inaccurately disclosed or did not disclose required mark-up or mark-down information for approximately 19,000 transactions involving municipal securities or corporate debt securities,” FINRA said.
From May 2018 to June 2021, the banking giant also “did not include the time the trade was executed and references and hyperlinks to the EMMA and TRACE webpages containing the security specific trading data on non-institutional customer confirmations for approximately 500,000 fixed price corporate primary market or agency primary market and approximately 35,000 fixed price municipal securities primary market transactions,” FINRA said. “Morgan Stanley self-identified these matters in June 2021 and reported them to FINRA.”
In addition to violating MSRB Rule G-15 on written confirmations on the muni transactions, the firm also violated FINRA rules 2232 and 2010 on the corporate and agency debt transactions, as well as MSRB Rule G-27 for failing to catch those mark-up disclosure violations.
“For example, with respect to the firm’s not disclosing mark-up and mark-down information on confirmations, the firm did not have any reasonably designed process in place to test the accuracy of the information in its internal systems that triggered mark-up and mark-down disclosures on non-institutional customer confirmations,” FINRA said.
Under MSRB Rule G-15, if the “offsetting” of the principal transaction is done by an affiliate of the dealer, the dealer is then required to “look through” to analyze the terms of the affiliate’s transaction and decide whether a disclosure is required and if so, whether it should be marked-up or down.
“The firm did not reasonably evaluate whether its internal system accurately captured offsetting trading activity involving one of its affiliates and, as a result, it did not timely detect that it was not capturing trade data from an affiliate and, therefore, was not disclosing or was inaccurately disclosing mark-ups and mark-downs on confirmations involving transactions executed with that affiliate,” FINRA said.
The firm’s written supervisory procedures required the firm to only review confirmations for time of execution and security specific URL disclosures where a mark-up or mark-down was required and therefore failed to detect time-of-execution and security-specific URL disclosures.
“Morgan Stanley has enhanced its supervisory processes for trade confirmations and is pleased to resolve this matter,” a spokesperson for Morgan Stanley said in a statement.
FINRA has charged a few other firms for mark-up failures in the last month, including The Jeffrey Matthews Financial Group, which was
At the top of this year, Rockefeller Financial was
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