Morgan Stanley Fined $2 Million for Short Sale & Short Interest Reporting
On May 3, 2015, The Financial Industry Regulatory Authority (FINRA) announced it has fined Morgan Stanley & Co. $2 million for short sale and short interest reporting and rule violations that spanned a period of more than six years, and for failing to implement a supervisory system reasonably designed to detect and prevent such violations.
Thomas Gira, Executive Vice President, FINRA Market Regulation, said, “Short interest reporting continues to provide investors with important transparency into the level of short selling in a particular issue. Accordingly, it is imperative that this information be timely and accurately reported. Similarly, a fundamental requirement for compliance with the short sale rule is that firms properly track their short positions.”
Firms are required to regularly report to FINRA their record of total “short” positions in all customer and proprietary firm accounts in all equity securities (with certain exceptions). FINRA or the listing exchange consolidates and publishes this short sale information for the benefit of the investing public. FINRA found that Morgan Stanley, over several years, failed to completely and accurately report its short sale interest positions in certain securities involving billions of shares. FINRA also found that the firm’s supervisory system was deficient because it failed to detect and prevent these violations over an extended period of time.
Regulation SHO generally requires firms to aggregate their positions in a security to determine if they are long or short. It also generally allows firms to track their positions in a security from certain trading operations or trading desks separately from other positions maintained at the firm through the use of an “aggregation unit.” Such aggregation units, however, cannot include security positions of customers or non-broker-dealer affiliates. FINRA found that over a seven-year period, Morgan Stanley included positions from the accounts of non-broker-dealer affiliates in a number of aggregation units when determining each unit’s net position. FINRA also found that the firm’s supervisory system was not reasonably designed to detect and prevent such violations.
In concluding this settlement, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
For further information please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, FL, (561) 416-8956, or by email at [email protected]. This information is provided as a general or informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Going Public Attorney
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