CFTC Hits Morgan Stanley with $500K Penalty for Overcharging Clients

Morgan Stanley & Co. LLC (MSCO) has agreed to pay a $500,000 civil penalty to resolve the Commodity Futures Trading Commission's allegations that it failed to adequately supervise the processing of futures Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term and Clearing Clearing Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th Read this Term fees, causing it to overcharge some customers.

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The US commodity regulator issued an order filing and simultaneously settling charges against MSCO, a New York-based registered futures commission merchant and a provisionally registered swap dealer. Morgan Stanley neither admitted nor denied wrongdoing under the settlement.

The CFTC said MSCO developed a proprietary automated system to identify, process, and reconcile exchange fees, but later it discovered it was inaccurate and faulty. However, it noted that the firm self-identified the problem with the fee reconciliation system in 2015 and changed procedures in order to correct it.

According to the order, MSCO’s automated system, by which it identifies and corrects discrepancies between the invoices it receives from exchange clearinghouses and the amounts it pays to customers, was inaccurate from at least 2009 through April 2016, causing the firm to overcharge some customers.

While the CFTC order finds that during that time, MSCO had accrued more than $2 million in excess fees from several clients, it also confirmed that the vast majority of customers’ accounts have been adjusted and fully refunded, and the firm has otherwise taken responsibility to resolve any remaining discrepancies.

Finally, the regulator said that issues with the reconciliation process were brought to MSCO's attention in early 2015, prompting an internal review that led to modifying its proprietary fee system. The company has already begun implementing improved reconciliation procedures to directly identify potential overcharges, and MSCO “represents that this functionality should prevent future overcharges.”