Washington, D.C. – On April 29, 2010, the U.S. Commodity Futures Trading Commission (CFTC) announced settlements in charges against Morgan Stanley Capital Group, Inc. and UBS Securities Inc. stemming from a concealed crude oil trade. Specifically, the CFTC alleges that Morgan Stanley concealed a large Trade at Settlement (TAS) block trade from the New York Mercantile Exchange (NYMEX), and that UBS Securities aided in this concealment.
Jeffrey Le Riche, a Morgan Stanley trader, and a UBS broker discussed a plan in early February 2009 to facilitate a TAS block trade involving March and April 2009 crude oil futures contracts. The agreement involved delaying the reporting of the trade until after market close. On February 6, 2009, Morgan Stanley purchased 33,110 March 2009 NYMEX Light Sweet Crude Oil futures contracts and sold an equal number of April 2009 contracts. As agreed, UBS did not report the trade to the NYMEX until 2:37 pm, after the market had closed.
The CFTC found that this action violated NYMEX Rule 6.21C(6), which requires block trades to be reported within five minutes of execution. By delaying the report, Morgan Stanley and UBS concealed the trade from the exchange.
As a result of the settlements, Morgan Stanley will pay a $14 million civil monetary penalty. UBS will pay $200,000. Both firms are required to cease and desist from further violations of the Commodity Exchange Act and comply with specified undertakings. Morgan Stanley has also agreed to notify its traders of new trading rules, administer yearly enhanced training on CFTC and exchange regulations, and implement enhanced surveillance of TAS block trades on the NYMEX within 90 days.
The CFTC’s Enforcement Division collaborated with the New York County District Attorney’s Office on this matter. The case was led by CFTC staff members Jeff Le Riche, Jenny Chapin, Michael Loconte, Jeremy Cusimano, Rick Glaser, and Richard Wagner.
Source: CFTC.gov
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