FINRA Slaps Morgan Stanley with a $250,000 Fine

Morgan Stanley has been slapped with a $250,000 fine by the Financial Industry Regulatory Authority (FINRA) for failing to report the short sale indicator for transactions in NMS and OTC equity securities.

Morgan Stanley implemented a new trade reporting logic in August 2017. 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.

In June 2019, Morgan Stanley learned of the issue in connection with FINRA's exam and corrected the programming error. By failing to report transactions with the required short sale indicator, Morgan Stanley violated FINRA Rules 6182 and 2010.

Additionally, 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 Morgan Stanley 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. The firm has agreed to pay a $250,000 fine to settle with the regulator. Earlier this month, Morgan Stanley was also fined $125 million by​ the U.S. Securities and Exchange Commission (SEC) and $75 million by the Commodity Futures Trading Commission (CFTC) to resolve investigations into its record-keeping practices.