The Financial Industry Regulatory Authority has fined Morgan Stanley $875,000 for failing to provide accurate trade data, also known as blue sheets, in an automated format in a timely manner when requested by FINRA and the SEC.
FINRA found that from at least 2014 through 2017, Morgan experienced significant failures with its blue sheet systems used to compile and produce blue sheet data.
Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
The Wall Street independent regulator further alleged that the US banks made many deficient blue sheet submissions with missing or inaccurate data, largely because of undetected coding errors. These problems involved nearly 869 inaccurate blue sheets on at least 156,678 options transactions, which demonstrated that the Morgan had inadequate processes in place to validate the accuracy of its submissions to SEC and FINRA.
Without admitting or denying the findings, Morgan Stanley determined that human errors were behind the wrong blue sheet submissions.
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This has caused the bank to provide wrong identifier information, including duplicate transactions, omitted certain transactions, failed to identify order-execution-time, and incorrectly reported “short” transactions as “long” in over 102,262 options trades.
“Specifically, for two purchase and two sales transactions, the blue sheet submission showed that the customer closed his options position (they were marked “buy close” and “sell close”), when in fact the transactions opened his options position (they should have been marked “buy open” and “sell open”). In total, this error caused the Firm to submit 107 inaccurate blue sheet submissions to FINRA (misreporting 6,305 options trades as closing transactions) and 518 inaccurate blue sheets submitted to SEC (misreporting 102,262 options trades as closing transactions),” the Finra statement further explains.
Blue sheets provide critical detailed information about securities transactions, including the security, trade date, price, share quantity, customer name, and whether it was a buy, sale, or short sale transaction.
The SEC has probed, fined several Wall Street banks and brokerage firms for similar lapses, including Citadel Securities, Natixis Securities Americas, and MUFG Securities Americas as it examines whether they have broken controls designed to prevent market abuse.
The SEC had previously fined Citigroup a record $7 million penalty for similar compliance failures. Also, Credit Suisse and Oz Management LP, $4.25 million were both fined $4.5 million.