Morgan Stanley Penalized By CFTC - Analyst Blog

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: GCAP , ITG , MS , PJC

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