WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Morgan Stanley & Co. LLC $2 million for short interest reporting and short sale 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 information for the benefit of the investing public. FINRA found that Morgan Stanley, over several years, failed to completely and accurately report its short 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, the SEC's rule that regulates short sales, 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.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2014, members of the public used this service to conduct 18.9 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.