Morgan Stanley Penalized By CFTC - Analyst Blog
March 28 2014 - 1:33PM
Zacks
Morgan Stanley Smith Barney LLC (MSSB), a registered Futures
Commission Merchant and a division of the investment brokerage firm
Morgan Stanley (MS) settled Commodity Futures
Trading Commission (CFTC) charges for $490,000 million. CFTC fined
Morgan Stanley as investigations revealed the company’s futures
trading unit violated rules regarding the management of overseas
futures and option customers’ secured funds.
The Probe
CFTC alleges that in Apr 2013 Morgan Stanley’s trading unit
inappropriately moved $16 million from customer funds bank account,
which led to a $9.27 million shortage in MSSB’s secured funds.
Though the company took corrective measures the following day after
it became aware of the matter, such an act is considered to be a
breach of rules. Following this, MSSB adopted several changes in
its policies and procedures owing to recommendations by an
independent auditor.
Several other allegations by CFTC include MSSB commingling customer
and firm funds, making incorrect calculations of segregated and
secured funds, and documenting account statements with incorrect
titles. CFTC also found similar wrongdoings by MSSB in 2012.
Notably on the brighter side, such violations did not cause
customers any losses. MSSB neither accepted nor contradicted the
allegation.
In Conclusion
The latest settlement of diluting customer and firm funds is
nothing new and it rather adds to similar cases in the industry. MF
Global Inc. a major brokerage firm, transferred around $1.6 billion
from client accounts to the firm’s account. Later in Oct 2011, the
company filed for Chapter 11 bankruptcy. Jolted by such cases,
regulators have imposed stricter rules in order to curb the
re-occurrence of these activities.
Therefore, such settlements safeguards the customers’ interests and
reduces the banks’ legal hassles to some extent.
Morgan Stanley currently carries a Zacks Rank #3 (Hold). Some
better ranked stocks in this space worth considering include
GAIN Capital Holdings, Inc. (GCAP),
Investment Technology Group Inc. (ITG) and
Piper Jaffray Companies (PJC). All these stocks
hold a Zacks Rank #1 (Strong Buy).
GAIN CAP HLDGS (GCAP): Free Stock Analysis Report
INVEST TECH-NEW (ITG): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
PIPER JAFFRAY (PJC): Free Stock Analysis Report
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