The US Commodity Futures Trading Commission (CFTC) has issued an order requiring Morgan Stanley & Co to pay a USD300,000 civil monetary penalty for failing to hold sufficient US Dollars in segregated accounts in the United States to meet all of its US Dollar obligations to cleared swaps customers.
The Order also finds that the firm failed to implement adequate procedures and requires Morgan Stanley to cease and desist from violating CFTC Regulations, as charged.
Aitan Goelman, the CFTC’s Director of Enforcement, says: “Since passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC has implemented rules to protect swaps customers and market participants, including rules for protection of cleared swaps customer collateral. This action demonstrates that the Division of Enforcement will investigate and pursue violations of these important rules of the road in the swaps market.”
As set forth in the Order, on numerous days from 12 March, 2013 to 7 March, 2014, Morgan Stanley failed to hold sufficient US Dollars in segregated accounts in the United States to meet all US Dollar obligations to the firm’s cleared swaps customers, in violation of CFTC Regulation 22.9. On those days, Morgan Stanley held the amount of the US Dollar deficits in Euros and other currencies, rather than in US Dollars, according to the Order. Because Morgan Stanley held the amount of the US Dollar deficits in other currencies, it did not have a shortfall in overall cleared swaps customer collateral. As the Order finds, however, the size of Morgan Stanley’s US Dollar deficits ranged from approximately USD5 million to approximately USD265 million, at times representing more than 10 percent of the amount that the firm was obligated to maintain in US Dollars for cleared swaps customers.
Additionally, the Order finds that from 8 November, 2012 to on or about 8 April, 2014, Morgan Stanley did not have in place adequate procedures to comply with the currency denomination requirements for cleared swaps customer collateral and did not train and supervise its personnel to ensure compliance with CFTC Regulation 22.9. Morgan Stanley thereby failed to supervise diligently its officers, employees, and agents and did not have sufficient procedures in place to detect and deter the violations found herein, in violation of Regulation 166.3, the Order finds.
The Order recognises that Morgan Stanley promptly reported the deficiencies to the CFTC, implemented corrective procedures, and cooperated with the CFTC’s Division of Enforcement in its investigation.
