Morgan Stanley & Co. LLC, a broker-dealer headquartered in New York, New York, has been censured and fined $2,750,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm failed to create and preserve adequate procedures and systems geared to ensure that customers’ margin securities would be properly controlled and held by the firm. Letter of Acceptance, Waiver and Consent, No. 2014040071002 (Dec. 19, 2016).
According to the AWC, from 2012 to 2013, Morgan Stanley implemented a system to segregate customers’ securities based upon certain system-based calculations. Apparently, the firm’s systems enabled the firm to release securities when customers’ securities amounts exceeded required levels. Apparently, due to the firm’s system malfunctions, customers’ securities had been released without there being an excess of securities validating it. Consequently, the customers’ shares were available to the firm to be utilized, and had been utilized on certain occasions.
The AWC stated that in one case, which occurred in January of 2012, the firm released the securities belonging to a firm customer in order for the firm to help effect a pledge to Options Clearing Corporation. Apparently, the release of the securities that were required to have been segregated, coupled with deliveries of the securities, caused a $41,200,000.00 intraday deficit.
The AWC additionally reported that the firm’s segregation system failures led to international deficits. The AWC stated that in January of 2012, a market value total of $10,800,000.00 in deficits occurred as a result of the firm’s transactions. In another circumstance, the firm caused deficits to be created because of the firm’s segregation system not operating on United States holidays. In one case, $16,000,000.00 in deficits reportedly occurred as a result of the 2012 Martin Luther King, Jr. holiday.
FINRA ultimately found that the firm’s conduct was violative of FINRA Rule 2010, NASD Rule 3010, Securities Exchange Act of 1934 Section 15, and SEC Rule 15c3-3(b). Since Morgan Stanley & Co. LLC’s establishment in December 3, 1969, the firm has been named in three hundred and seventy-five regulatory events, fifty-five customer initiated investment related arbitration claims, and four civil events concerning allegations of the firm’s misconduct.
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