The Financial Industry Regulatory Authority has fined Morgan Stanley & Co. Inc. and Morgan Stanley Smith Barney LLC $1 million for allegedly excessive markups and markdowns on bond trades.
The firms were also ordered to pay $371,000 in restitution and and interest to customers who were affected by the charges.
Finra charged that Morgan Stanley charged markups and markdowns ranging from below 5% to 13.8% on corporate and municipal bond transactions that 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.
In penalties were part of a consent agreement in which Morgan Stanley neither admitted to nor denied the charges, but consented to the entry of Finra's findings.
"Firms must ensure that customers who buy and sell securities, including corporate and municipal bonds, receive fair and reasonable prices regardless of whether a markup or markdown is above or below 5%,'' said Thomas Gira, executive vice president of Finra market regulation. "Morgan Stanley clearly violated fair pricing standards and Finra will continue to require firms that violate such standards to make their customers whole.''
Finra also said it 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%, but nonetheless may have been excessive.
As part of the settlement, Finra has ordered Morgan Stanley to revise its written supervisory procedures regarding supervisory review of markups and markdowns in fixed-income transactions.