← Broker database 2022-09-28
Morgan Stanley Fined $500,000 for Regulation M Filing Failures
According to FINRA, Morgan Stanley & Co. LLC was fined $500,000 for failing to submit, submitting untimely, and submitting inaccurate or incomplete restricted period notifications and trading notifications to FINRA as required by Regulation M.
The findings revealed that as a manager in various offerings, the firm's notifications failed to identify all of the syndicate members participating in relevant offerings, among other deficiencies. These failures resulted in incomplete and inaccurate information being provided to FINRA for regulatory surveillance purposes.
As a result of these filing failures, the firm failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules. Specifically, the firm's system was not reasonably designed to verify the accuracy of certain elements of Regulation M filings.
The firm took several steps to correct the issues after they were identified, including enhancing its supervisory systems and procedures regarding compliance with Regulation M and FINRA Rule 5190. These enhancements demonstrate the firm's recognition of the deficiencies and efforts to prevent future violations.
Regulation M notifications are critical for FINRA's surveillance of securities offerings and detection of potential market manipulation. When firms serve as managers of offerings, they have a responsibility to accurately and timely notify FINRA about restricted periods and identify all syndicate members participating in offerings. This information enables FINRA to monitor trading activity during distribution periods and detect potential violations of Regulation M's prohibitions on manipulative activity.
The failure to identify all syndicate members is particularly problematic because it can prevent FINRA from properly surveilling the trading activity of all parties involved in a distribution. If FINRA is unaware that certain firms are syndicate members, it cannot effectively monitor whether those firms are complying with Regulation M's restrictions on trading during the restricted period.
This case highlights the importance of firms having robust systems to ensure the accuracy and completeness of regulatory filings, particularly when serving in leadership roles such as offering managers. Even large, sophisticated firms must maintain adequate systems to verify that required regulatory notifications contain accurate and complete information. When these systems fail, it can undermine regulatory surveillance and the protections that Regulation M provides against manipulative activity during securities distributions.