FINRA fines Morgan Stanley for inaccurate blue sheets submission

Maria Nikolova

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.

Read this next

Institutional FX

Fiserv secures major payment institution licence in Singapore

Brookfield-based financial services technology provider Fiserv Inc has obtained nod for a Major Payment Institution license in Singapore.

Institutional FX

Finalto expands NDFs line-up with Taiwanese dollar

Finalto announced today that it has expanded its non-deliverable forwards (NDFs) offering with the addition of Taiwan’s dollar to its trading platform.

Opinion

It’s time for FX to Harness Crypto’s Potential

Jonathan Cumberlidge, FX Sales Director for BVNK, makes the case for cryptocurrencies in improving the efficiency and flexibility of foreign exchange trading.

Digital Assets

Owner of OptionMint, OptionKing, and OptionQueen gets 30 months in prison

A US federal judge has sentenced Ohio resident Jared Davis, who was found guilty for his participation in a multi-million fraud scheme carried out by Israeli-run binary options websites.

Executive Moves

iS Prime co-founders Raj Sitlani and Jonathan Brewer leave, but “business as usual”

“For our clients and teams at iS Prime, iS Risk and iS Prime Hong Kong, it is business as usual. We will be increasing our investment in our technology and staff, putting our clients first as we drive the business forwards to maintain our market leadership position.”

Digital Assets

Germany-focused DekaBank taps METACO for digital asset custody offering

“Digital assets are a critical part of the future, a radical new way for how assets will be represented, from currencies to real estate.”

Technology

Eventus launches AML solution for TradFi and digital asset space

“Firms operating in traditional financial markets and digital assets alike are facing greater challenges than ever to protect themselves from those presenting a risk to their businesses and reputations, along with their standing with government regulators.”

Industry News

Qomply launches direct-to-FCA trade report solution that bypasses ARM

“Certainly, for back-reporting large volumes of data, QomplyDirect removes extra ARM fees by offering the flexibility of sending reports directly to the FCA via a firm’s own infrastructure.”

Executive Moves

BNP Paribas AM appoints Geoff Dailey as Deputy Head of US Equities

“Geoff has more than 20 years’ experience in the industry and as a key, senior member of the team with a strong investment pedigree and leadership profile, he is the natural successor for Pam.”

<