FINRA has fined Morgan Stanley Smith Barney $1 million and ordered another $371,000 in restitution and interest to customers for excessive markups and markdowns charged to customers on corporate and municipal bond transactions as well as other supervision violations.
The regulator claims that Morgan Stanley charged markups and markdowns ranging from below 5% to 13.8% on corporate and municipal bond transactions, which were "higher than warranted given factors including market conditions, the cost of executing the transactions and the value of the services rendered to the customers."
"Firms must ensure that customers who buy and sell securities, including corporate and municipal bonds, receive fair and reasonable prices regardless of whether a markup or markdown is above or below 5%,” Thomas Gira, executive vice president, FINRA market regulation, said in a statement. “Morgan Stanley clearly violated fair pricing standards and FINRA will continue to require firms that violate such standards to make their customers whole.”
FINRA also determined that Morgan Stanley's supervisory system for corporate and municipal bond markups and markdowns was inadequate, asserting that the firm's supervisory reports were not designed to include markups and markdowns that were below 5% but nonetheless may have been excessive.
Before August 2009, Morgan Stanley's policies and procedures considered only one of two charges that the firm added to the price of a bond when it determined whether a markup or markdown was fair and reasonable. The firm was also ordered to revise its written supervisory procedures regarding supervisory review of markups and markdowns in fixed income transactions with its customers.
"Morgan Stanley Smith Barney cooperated fully with FINRA and is pleased to settle this matter. The trades in question represent a tiny fraction of the millions of trades executed for clients during the time period, and we are continuing to improve our control processes governing pricing," Morgan Stanely officials said in an emailed statement.
Register or login for access to this item and much more
All On Wall Street content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access