Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, November 10, 2011

FINRA Fines Morgan Stanley for Excessive Markups

FINRA announced today that it fined Morgan Stanley & Co. Inc. and Morgan Stanley Smith Barney LLC $1 million and ordered $371,000 in restitution and interest to customers for excessive markups and markdowns charged to customers on corporate and municipal bond transactions, and related supervision violations.  FINRA found that Morgan Stanley charged markups and markdowns ranging from below 5 percent to 13.8 percent on corporate and municipal bond transactions, which were higher than warranted given factors including market conditions, the cost of executing the transactions and the value of the services rendered to the customers.

 FINRA found that Morgan Stanley's supervisory system for corporate and municipal bond markups and markdowns was inadequate. The firm's supervisory reports were not designed to include markups and markdowns that were below 5 percent but nonetheless may have been excessive. And before August 2009, Morgan Stanley's policies and procedures considered only one of two charges that the firm added to the price of a bond when it determined whether a markup or markdown was fair and reasonable. Morgan Stanley was also ordered to revise its written supervisory procedures regarding supervisory review of markups and markdowns in fixed income transactions with its customers.

 

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