22 July 2014

Morgan Stanley penalised for DMA algo trade gone wrong

16 May 2012  |  5328 views  |  0 Morgan Stanley web screen shot

Nasdaq OMX Stockholm has slapped a Skr400,000 fine on Morgan Stanley after a Direct Market Access (DMA) client of the US bank mis-keyed an algo trade that spooked the markets and triggered an intraday auction by one of the Exchange's automatic volatility guards.

The case pertains to an incident on 30 November, 2011, immediately after market open, when one of the bank's DMA clients made a coding error in its algorithm software that triggered a large number of buy and sell orders from the same account.

When the Exchange attempted to contact the Morgan Stanley trader responsible for submitting the orders it was unable to do so, violating the Exchange's Nordic Member Rules (NMR). The rules state that a member enabling client driven trading via Direct Market Access arrangements, shall use a trader ID that is designated for DMA and it shall appoint contact persons responsible for such ID and ensure that he or she can be contacted at any time during trading hours.

Moreover, whilst the Exchange acknowledges that Morgan Stanley's internal systems and controls enabled them to detect and independently terminate the trading, the incident demonstrated that the bank had no technical and administrative arrangements in order to prevent it from happening and causing market disturbance.

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