NASD announced today that it has imposed fines totaling $2.9 million against Morgan Stanley & Co., Inc. (MSCO) and Morgan Stanley DW Inc. (MSDW) for extensive violations dealing with reporting obligations, best execution, short sales, and a range of other NASD, Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) rules.
In addition to the fines, both firms will provide reports to NASD detailing the corrective actions completed and the ongoing corrective actions being taken to ensure that each firm has adequate policies, procedures, systems and training necessary to ensure regulatory compliance.
"MSCO and MSDW had numerous types of reporting violations and the scope of those violations indicated a failure to adequately address compliance needs of the firms," said NASD Executive Vice President Tom Gira. "But MSCO and MSDW also undertook independent, internal reviews to determine the causes and extent of their trade reporting problems, provided their findings to NASD, and were otherwise highly cooperative with NASD's investigation. The firms' cooperation is reflected in the sanctions."
NASD found that MSCO and MSDW each committed numerous violations of federal securities laws, NASD rules and MSRB rules during the seven-year period from 1999 to 2006. Among the most significant was a series of violations of the Order Audit Trail System (OATS) reporting requirements, which resulted from MSCO's pervasive inability to properly track and report OATS data. Additionally, MSDW had numerous regulatory violations involving the firm's failure to adequately price, sell and report corporate and municipal bond transactions, and will make nearly $30,000 in restitution payments to affected customers. NASD also found that both MSCO and MSDW failed to implement effective supervisory systems and written supervisory procedures necessary to ensure compliance with federal securities laws, NASD rules and MSRB rules.
NASD also found a variety of other regulatory violations at both firms. NASD found that MSCO:
- failed to timely report or incorrectly reported thousands of transactions through the Nasdaq Market Center in Nasdaq National Market securities, OTC Equity securities and listed securities
- executed thousands of short sales transactions without ensuring that the firm could deliver or arrange to borrow the securities by the settlement date
- failed to execute hundreds of customer trades at the best available price, and will make nearly $5,000 in restitution payments to affected customers
- failed to report or incorrectly reported thousands of transactions in corporate bonds
- and created locked and crossed market conditions in hundreds of instances
NASD found that MSDW:
- failed to send, or failed to send in a timely manner, required documents to hundreds of customers in connection with municipal bond transactions
- failed to report or incorrectly reported thousands of transactions in corporate and municipal bonds
- and failed to enforce the firm's written supervisory procedures with respect to municipal bonds
In settling these matters, MSCO and MSDW neither admitted nor denied the charges, but consented to the entry of NASD's findings.