FINRA fines Morgan Stanley for transaction reporting deficiencies
Morgan Stanley & Co. LLC has agreed to pay a fine of $250,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
In August 2017, the firm implemented a new trade reporting logic. A programming error in the new logic caused the firm to exclude the short sale indicator when reporting approximately 9.6 million short sale transactions to the NYSE Trade Reporting Facility (TRF) from August 2017 through May 2019.
The firm learned of the issue in connection with FINRA’’s exam and corrected the programming error in June 2019.
By failing to report transactions with the required short sale indicator, Morgan Stanley violated FINRA Rules 6182 and 2010.
A similar programming error to the one described above caused the firm to erroneously exclude the short sale indicator when reporting 2,240 short sale transactions to the OTC TRF from November 2014 to June 2019. The firm also corrected this programming error in June 2019.
Therefore, Morgan Stanley violated FINRA Rules 6624 and 2010.
From November 2014 to June 2019, Morgan Stanley conducted three supervisory reviews of equity trade reporting, but they were not reasonably designed to achieve compliance with FINRA Rules 6182 and 6624 with respect to short sale indicator reporting to the NYSE and OTC TRFs.
Specifically, when the firm began reporting to the NYSE and OTC TRF, the firm reviewed certain test trades, but those reviews did not detect the absence of the short sale indicator described above. The firm did not conduct any subsequent reviews to determine if the firm was reporting the accurate short sale indicator to the NYSE and OTC TRFs.
Therefore, Morgan Stanley violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
On top of the fine, the firm has agreed to a censure.