Morgan Stanley hit with $5 mln fine for noncompetitive trades
First Published 5th June 2012
The CFTC said Morgan Stanley had inadequate supervisory systems and controls to detect and deter the unlawful conduct that occurred repeatedly over 18 months
Washington - The U.S. Commodity Futures Trading Commission (CFTC) fined Morgan Stanley $5 million, charging that the bank unlawfully executed, processed and reported numerous off-exchange futures trades to the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT).
Because the futures trades were executed noncompetitively, the CFTC said they were "fictitious sales" and resulted in reporting of non-bona fide prices, in violation of regulations. The order also finds that Morgan Stanley had related supervisory and recordkeeping violations.
"The laws requiring that futures trades be executed on an exchange serve important price discovery and transparency principles," said David Meister, Director of the CFTC's Division of Enforcement.
"As today's action should demonstrate, when an FCM (futures commission merchant) reports that it properly conducted an off-exchange futures trade ... that report had better be accurate. In all cases, firms must have appropriate systems and controls in place designed to detect and prevent the conduct described in the order."
According to the CFTC's order, from at least April 18, 2008 through October 29, 2009, Morgan Stanley noncompetitively executed numerous futures trades and improperly reported them, since they did not have the required corresponding cash or OTC derivative positions.
The order finds that Morgan Stanley's supervisory systems and internal controls were not adequate to detect and deter the noncompetitive trading of futures contracts improperly designated as Exchanges For Related Positions (EFRPs).
For example, although Morgan Stanley's Futures Operations department had the responsibility to report EFRPs to the CME and CBOT, that department was not required to verify that the EFRPs had the required corresponding related cash or OTC derivative positions, nor was any other operations department required to do so.
"The order further finds that Morgan Stanley failed to ensure that its employees involved in the execution, handling and processing of EFRPs understood the requirements for executing bona fide EFRPs," the CFTC said. "Moreover, the order finds that Morgan Stanley lacked sufficient surveillance systems to identify trades improperly designated as EFRPs."