Finra Attacks Morgan Stanley Muni Trades After Earlier Violations
In a reminder that regulators follow up on brokerage firms who admit to past violations, the Financial Industry Regulatory Authority has fined Morgan Stanley $115,000 and ordered it to restore $55,284 to investors whom it says were overcharged for municipal bond trades between July 2013 and March 2014.
The sanctions are not eye-popping for a giant like Morgan Stanley, but the self-regulatory group emphasized in the consent order it accepted on Wednesday that they resulted from renewed investigatory scrutiny because of earlier bond pricing violations.
Morgan Stanley in late 2011 agreed to pay a $650,000 fine and another $1 million in August 2013 for unreasonable muni bond markups and markdowns, Finra’s order said in describing the firm’s “relevant disciplinary history.”
Investigators went back to the trading desk and uncovered 35 muni trades or pairs of trades between the second half of 2013 and the first quarter of 2014 in which they found pricing on principal and agency trades that violated Municipal Securities Rulemaking Board rules because of prices that were not fair and reasonable or inconsistent with Morgan Stanley’s obligations to its customers.
Morgan Stanley accepted Finra’s sanctions without admitting or denying the facts the industry self-regulatory cited. A Morgan Stanley spokeswoman did not immediately respond to a request for comment on the agreement or on changes the firm may have made in its trading procedures.
In 2015, Morgan Stanley agreed to a $675,000 settlement with Finra over charges that it misrepresented municipal bond interest to customers as tax-exempt, when the interest should have been taxable.
Both the MSRB and Finra have passed new rules effective in 2018 that will require firms to disclose on retail customer confirmation statements, in dollars and cents and percentage terms, how much they make on fixed-income transactions. Securities industry firms and trade groups had opposed the rules.
-Jed Horowitz contributed reporting to this story.