Morgan Stanley to Pay $1M Over Lack of Risk Controls

From August 2019 through June 2023, Morgan Stanley "did not maintain a system of controls reasonably designed to manage the risks of certain of its market access activity with respect to certain of its low touch and high touch customers," FINRA said.

When onboarding new customers placing low touch orders, the firm placed those customers into groups, which determined the order controls that would apply to each customer.

"However, the firm's procedures did not describe the process for placing new clients into client groups or how the firm determined which group to place customers into," according to the order.

Further, the firm's "procedures did not describe the process for establishing reasonable thresholds for orders priced more than a specified percentage away from a specified reference price (the "price away" control) or orders exceeding a pre-established maximum dollar amount for a single order (the "single order notional value" control) for the different customer groups," the order states.

Morgan Stanley "did not document on a customer-by-customer basis its rationale for why those thresholds were reasonable for each customer," FINRA states.

With respect to high touch customers, "the firm assigned single order notional value thresholds to traders on the desk, rather than by customer group as it did for low touch customers, reflecting the fact that each trader determines how to access the market," the order continues.

From August 2019 through June 2023, "the firm did not in certain circumstances establish, document, and maintain a reasonable system for regularly reviewing the effectiveness of the risk management controls and supervisory procedures relating to market access," according to the order.

The firm remediated the issues by June 2023.