FINRA fines Morgan Stanley for inaccurate blue sheets submission
From February 2014 through April 2017, Morgan Stanley submitted at least 869 inaccurate blue sheets to SEC and FINRA.
The United States Financial Industry Regulatory Authority (FINRA) today accepted a proposed settlement with Morgan Stanley Smith Barney LLC.
From February 2014 through April 2017, Morgan Stanley submitted at least 869 inaccurate blue sheets to SEC and FINRA, misreporting information on at least 156,678 options transactions. Therefore, Morgan Stanley violated Section 17(a)(1) of the Securities Exchange Act and Rules 17a-4(j) and 17a-25 thereunder, and FINRA Rules 8211, 8213, and 2010.
FINRA first discovered Morgan Stanley’s blue sheet errors in late 2016, when blue sheet information submitted by Morgan Stanley proved to be inconsistent with information reflected in customer account statements. Specifically, for two purchase and two sales transactions, the blue sheet submission showed that the customer closed his options position (they were marked “buy close” and “sell close”), when in fact the transactions opened his options position (they should have been marked “buy open” and “sell open”).
Morgan Stanley determined that human error had caused these errors, which errors had been repeated in additional blue sheet submissions. In total, this error caused the firm to submit 107 inaccurate blue sheet submissions to FINRA (misreporting 6,305 options trades as closing transactions) and 518 inaccurate blue sheets submitted to SEC (misreporting 102,262 options trades as closing transactions).
Subsequently, FINRA identified different inconsistencies between blue sheet submissions and other documents that led to the discovery of two separate computer coding issues that caused Morgan Stanley to incorrectly report whether options transactions opened or closed positions. One coding error – related to the firm’s money manager programs – had caused Morgan Stanley’s blue sheets to report all options trades as closing trades. As a result, the firm submitted 34 inaccurate blue sheet submissions to FINRA (misreporting approximately 2,790 options trades as closing transactions) and 210 inaccurate blue sheet submissions to the SEC (misreporting approximately 45,321 options trades as closing transactions).
The second coding error occurred because Morgan Stanley’s electronic blue sheet system obtained trade data from an internal data repository that sometimes had a blank in its symbol field. This error had caused Morgan Stanley’s electronic blue sheet system sometimes to indicate that closing transactions were opening transactions. Because this error occurred intermittently, the number of affected blue sheet submissions or transactions is unknown.
Morgan Stanley has agreed to to the imposition of a censure and a fine of $875,000.
