Morgan Stanley Smith Barney LLC (MSSB), a registered Futures
Commission Merchant and a division of the investment brokerage
) 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.
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
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.
Investment Technology Group Inc.
Piper Jaffray Companies
). All these stocks hold a Zacks Rank #1 (Strong Buy).
GAIN CAP HLDGS (GCAP): Free Stock Analysis
INVEST TECH-NEW (ITG): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis
PIPER JAFFRAY (PJC): Free Stock Analysis
To read this article on Zacks.com click here.