Washington, D.C. – Morgan Stanley and Co. Incorporated has been penalized $350,000 by the Commodity Futures Trading Commission (CFTC) for failing to comply with reporting rules related to large trading positions over a ten-year period. The CFTC issued an order simultaneously filing and settling charges against the registered Futures Commission Merchant (FCM).
The violations centered on Part 17 of the Commodity Exchange Act (CEA) and its accompanying regulations, which require FCMs like Morgan Stanley to report futures and options positions to the CFTC. These “Large Trader” reports are crucial for the CFTC to assess market risks and ensure regulatory compliance.
According to the CFTC’s order, from 2007 through 2017, Morgan Stanley systematically omitted mandatory data from its Part 17 reports. The issues stemmed from four separate flaws within Morgan Stanley’s proprietary reporting software. As of September 2015, the firm’s daily reports contained approximately 25,000 line items of reportable information, representing 8.3 million underlying positions.
The reporting deficiencies were concentrated on transactions occurring at the Chicago Mercantile Exchange (CME) and the Minneapolis Grain Exchange (MGEX). CME contract reporting was inaccurate between January 2009 and September 2015, while MGEX transaction data was omitted entirely from 2007 to 2015. Morgan Stanley identified and corrected two software issues in 2016, but a third glitch causing omissions of options data was discovered and fixed later that year.
In 2017, the firm self-reported a further problem – incorrect coding of active client accounts. This resulted in positions not being properly aggregated and therefore not reported as required under Part 17. The CFTC found that these omissions constituted a violation of Section 4g(a) of the CEA and CFTC Regulation 17.
The CFTC acknowledged Morgan Stanley’s substantial cooperation throughout the investigation. The firm proactively provided detailed information regarding the scope and duration of the deficiencies after discovering them and promptly remediated the issues. They also self-reported the final coding error, demonstrating a commitment to compliance.
In addition to the monetary penalty, Morgan Stanley is required to cease and desist from further violations of the CEA and related regulations, and continue cooperating with the CFTC’s Division of Enforcement in any related matters.
Source: CFTC.gov
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