Morgan Stanley & Co. LLC has agreed to pay a $1 million fine to the Financial Industry Regulatory Authority (FINRA) for failing to maintain adequate risk management controls and supervisory procedures for its market access business.
Morgan Stanley Fined $1m By FINRA for Market Access Control Failures
According to FINRA, from August 2019 to June 2023, Morgan Stanley failed to establish and document a robust system to prevent the entry of erroneous orders.
It is said that the firm’s procedures for placing new clients into groups with specific order controls were unclear, and the rationale for setting thresholds for order size and price was often undocumented.
Additionally, the firm’s review process for orders that triggered risk management controls was inadequate, potentially allowing for the release of erroneous orders.
FINRA’s investigation reportedly found that Morgan Stanley’s market access controls were not sufficiently rigorous, particularly for high-speed trading customers.
The firm’s soft block system, which paused orders for review rather than outright rejecting them, was deemed insufficient to prevent the entry of erroneous orders.
This settlement underscores the importance of robust risk management controls in the securities industry. Additionally, FINRA indicates that Morgan Stanley’s system permitted orders that had undergone manual review and approval to be amended later to a more conservative version without requiring further manual review.
