Morgan Stanley Fined $400,000 for Trade Confirmation Disclosure Failures
The Financial Industry Regulatory Authority announced that it has censured and fined Morgan Stanley Smith Barney LLC $400,000 for inaccurate and incomplete trade confirmations provided to clients.
According to FINRA, between May 2018 and July 2022, Morgan Stanley failed to disclose or misstated markups and markdowns on approximately 19,000 municipal securities and corporate debt transactions. Additionally, the firm omitted the time of execution and security-specific URLs on approximately 35,000 fixed-price municipal securities transactions and approximately 500,000 fixed-price corporate or agency debt securities transactions.
As a result, these lapses violated Municipal Securities Rulemaking Board Rule G-15, in relation to municipal securities, and FINRA Rules 2232 and 2010 for corporate or agency debt. The firm also failed to establish and maintain adequate supervisory systems to ensure compliance with these rules, leading to violations of MSRB Rule G-27 and FINRA Rule 3110.
Trade confirmations are crucial documents that provide investors with transparency into their transactions. They help identify potential conflicts of interest, verify transaction terms, assess transaction costs, and evaluate the quality of trade executions.
MSRB Rule G-15 requires each broker, dealer, or municipal securities dealer to provide each customer with a written confirmation that complies with the requirements of MSRB Rule G-15, which include, among other things, “time of execution.” Similarly, FINRA Rule 2232 requires that “the customer confirmation must include the firm’s mark-up or mark-down for the transaction, expressed as a total dollar amount and as a percentage of the prevailing market price.” A violation of Rule 2232 is also a violation of Rule 2010, which requires “high standards of commercial honor.”
FINRA did state that Morgan Stanley self-reported these issues to the agency in June 2021 and has since taken corrective measures to address the deficiencies in its procedures, and it has revised its systems and processes to align with the requirements of MSRB Rule G-15 and FINRA Rule 2232.
Earlier this year, Morgan Stanley was similarly fined $1.6 million for municipal securities violations and other related failures.
Headquartered in Purchase, N.Y., Morgan Stanley Smith Barney LLC is a full-service brokerage firm that conducts, among other things, a general and municipal securities business with retail and high net-worth customers. As of December 2023, the firm had approximately 27,000 registered representatives and approximately 1,000 branches.
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