Morgan Stanley will pay $6.75 million to resolve claims that its futures brokerage unlawfully traded positions off exchanges owned by CME Group Inc.
The trades during an 18-month period in 2008 and 2009 were non-competitive and constituted “fictitious sales” that violated commodity-market rules, the U.S. Commodity Futures Trading Commission said today in a statement announcing a $5 million fine against New York-based Morgan Stanley. The bank, which was accused of supervisory and record-keeping violations, will pay an additional $1.75 million to resolve related complaints from CME and the Chicago Board of Trade.
“Laws requiring that futures trades be executed on an exchange serve important price discovery and transparency principles,” David Meister, CFTC’s enforcement director said in the agency’s statement. “Firms must have appropriate systems and controls in place designed to detect and prevent the conduct described in the order.”
Morgan Stanley employees, including a managing director, improperly executed off-exchange trades in Eurodollar and Treasury Note futures contracts in order to limit clients’ risks, according to the CFTC order. Morgan Stanley violated commodity-market rules by failing to ensure there were related cash or over-the-counter swap positions in the trades, the agency said.
“Morgan Stanley cooperated fully with exchange staff in the matter, including by conducting a detailed internal investigation, self-reporting issues it found, and putting in place various enhanced controls,” Mary Claire Delaney, a bank spokeswoman, said in an e-mail statement. “The orders do not find that any customers were harmed, that the transactions were conducted at commercially unreasonable prices or that the transactions distorted or otherwise impacted market prices.”