) reached a settlement with The Commodity Futures Trading
Commission (CFTC) to pay $5 million for violating the future
trading rules. The rules require the firms to execute trades only
on exchanges, otherwise those will be considered fictitious
However, Morgan Stanley & Co. LLC, a wing of Morgan Stanley,
carried out several off-exchange futures trades to minimize
consumers' risk and reported these to the Chicago Mercantile
Exchange (CME) and Chicago Board of Trade (CBOT) as exchanges for
related positions (EFRPs), thereby violating the Commodity Exchange
For this, the company is required to pay an extra sum of $1.75
million to the CME and CBOT. According to CFTC, the fine to be paid
by Morgan Stanley should deter the company from further violating
As per CFTC, all the Eurodollar and Treasury Notes future
contract trades carried out from April 2008 to October 2009 by
Morgan Stanley & Co. LLC, which is a registered futures
commission merchant (FCM), were noncompetitive and unlawful. CFTC
also stated that these were carried out without having any
equivalent cash or Over the Counter (OTC) derivative positions.
Moreover, CFTC has accused Morgan Stanley of having ill-equipped
administrative and internal controls that failed to detect this
fraudulent trading and its dubious designation as EFRPs. The
company was also accused of failing to overview its employees'
conduct regarding the same.
The CFTC has pointed out that the customers were unharmed and
trades were not quoted at irrational prices because of these
fictitious sales. However, this regulatory body took stringent
measures against the violation as it threatened the price discovery
and transparency principles on which the future trade laws are
The officials at Morgan Stanley commented that the company had
co-operated with the CFTC and is satisfied to have reached a
We believe that the settlement of such claims does give the
banking giant a sense of relief as this will enable it to
concentrate more on its core activities. However, these settlements
do affect a company's financials and reputation. Moreover,
involvement in fraudulent trading will affect investors' confidence
in the stock to an extent.
Currently, Morgan Stanley retains its Zacks #3 Rank, which
translates into a short-term Hold rating. One of its peers,
Bank of America Corporation
) also retains a Zacks #3 Rank.
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MORGAN STANLEY (MS): Free Stock Analysis Report
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