The Financial Industry Regulatory
Authority (FINRA) has announced a fine of $1.6 million against Morgan Stanley
Smith Barney LLC. This penalty stems from the firm’s repeated failures to
promptly close out failed inter-dealer municipal securities transactions and to
take timely actions to obtain physical possession or control of municipal
security positions that exceeded 30 calendar days, alongside related
supervisory lapses.
This marks the first disciplinary
action by FINRA where a firm has been charged with violating the close-out
requirements outlined in the Municipal Securities Rulemaking Board (MSRB) Rule,
in addition to associated supervisory shortcomings. Notably, FINRA had
previously sanctioned Morgan Stanley for similar supervisory failures
concerning short positions in municipal securities back in 2015.
MSRB Rule mandates that failed
inter-dealer municipal securities transactions must be canceled or closed out
no later than 20 calendar days after the settlement date, while Exchange Act
Rule requires broker-dealers to promptly secure physical possession or control
of securities not received for over 30 calendar days.
FINRA’s investigation found
instances where Morgan Stanley failed to timely cancel or close out 239
inter-dealer municipal transactions, exceeding 20 calendar days after the
settlement date, totaling approximately $9 million from December 2016 through
August 2021. Moreover, the firm neglected to take necessary actions to obtain
possession or control of 247 municipal securities valued at approximately $9.4
million, which it failed to receive for an average of approximately 177 days
from January 2016 through August 2021.
We have fined Morgan Stanley $1.6 million for municipal securities violations and related failures.
Learn more ▶️ https://t.co/7vXA5xYfau pic.twitter.com/kfBvdtukZ1
— FINRA (@FINRA) February 15, 2024
Resolution of the Matter: Consent
and Allocation of Fine
Additionally, Morgan Stanley
was found to have lacked a supervisory system and written procedures reasonably
designed to ensure compliance with MSRB Rule close-out requirements and
Exchange Act Rule possession or control requirements. The firm did not update
its processes for addressing municipal fails-to-receive until June 2021, and
its written supervisory procedures were not revised until September 2021.
Morgan Stanley resolved the
matter by consenting to FINRA’s findings without admitting or denying the
charges. FINRA allocated $1.2 million of the $1.6 million fine to the MSRB.
The Financial Industry Regulatory
Authority (FINRA) has announced a fine of $1.6 million against Morgan Stanley
Smith Barney LLC. This penalty stems from the firm’s repeated failures to
promptly close out failed inter-dealer municipal securities transactions and to
take timely actions to obtain physical possession or control of municipal
security positions that exceeded 30 calendar days, alongside related
supervisory lapses.
This marks the first disciplinary
action by FINRA where a firm has been charged with violating the close-out
requirements outlined in the Municipal Securities Rulemaking Board (MSRB) Rule,
in addition to associated supervisory shortcomings. Notably, FINRA had
previously sanctioned Morgan Stanley for similar supervisory failures
concerning short positions in municipal securities back in 2015.
MSRB Rule mandates that failed
inter-dealer municipal securities transactions must be canceled or closed out
no later than 20 calendar days after the settlement date, while Exchange Act
Rule requires broker-dealers to promptly secure physical possession or control
of securities not received for over 30 calendar days.
FINRA’s investigation found
instances where Morgan Stanley failed to timely cancel or close out 239
inter-dealer municipal transactions, exceeding 20 calendar days after the
settlement date, totaling approximately $9 million from December 2016 through
August 2021. Moreover, the firm neglected to take necessary actions to obtain
possession or control of 247 municipal securities valued at approximately $9.4
million, which it failed to receive for an average of approximately 177 days
from January 2016 through August 2021.
We have fined Morgan Stanley $1.6 million for municipal securities violations and related failures.
Learn more ▶️ https://t.co/7vXA5xYfau pic.twitter.com/kfBvdtukZ1
— FINRA (@FINRA) February 15, 2024
Resolution of the Matter: Consent
and Allocation of Fine
Additionally, Morgan Stanley
was found to have lacked a supervisory system and written procedures reasonably
designed to ensure compliance with MSRB Rule close-out requirements and
Exchange Act Rule possession or control requirements. The firm did not update
its processes for addressing municipal fails-to-receive until June 2021, and
its written supervisory procedures were not revised until September 2021.
Morgan Stanley resolved the
matter by consenting to FINRA’s findings without admitting or denying the
charges. FINRA allocated $1.2 million of the $1.6 million fine to the MSRB.