Though most of the unfair markups and markdowns were tied to 11 trades of corporate securities during the 2003 calendar year, FINRA found three trades of municipal bonds during the same period were bought or sold “at an aggregate price ... that was not fair and reasonable, taking into consideration all relevant factors, including the best judgement” of the dealer.
Without admitting or denying the charges, Morgan Stanley agreed to the fine as well as $40,605.81 in restitution to its customers, of which $5,858.49 was made to customers involved in the municipal transactions.
Of the three muni transactions, one was marked down 22.98% and two were marked up 7.41% and 6.98%.
FINRA found that the firm’s conduct violated the Municipal Securities Rulemaking Board’s Rule G-17 on fair dealing as well a G-30 on fair pricing.
As a general guideline, markups or markdowns of 5% or more are excessive, though there is no bright-line test and regulators consider a variety of factors in determining if a price is unfair, sources said Friday.
A spokeswoman for Morgan Stanley declined to comment on the FINRA action.
Meanwhile, the self-regulator also announced last week that it has fined Chicago-based thinkorswim Inc. $275,000 for numerous municipal and other rules violations, though the muni violations only represented about $5,000 of the overall fine.
Between Jan. 1, 2006, and May 31, 2009, FINRA found that the firm reported information to the MSRB’s Real-time Transaction Reporting System that it was not required to report, specifically certain purchase and sale transactions to which it was not a party.
In a narrow “sample review period” from October through December 2007, the firm reported 61 such transactions to the RTRS.
FINRA found that the firm’s conduct violated the MSRB’s Rule G-14 on reports of sales or purchases, as well as Rule G-27 on supervision.
FINRA also announced that it had fined Richmond-based Scott & Stringfellow LLC $10,000 for failing to report its participation in municipal underwritings on the MSRB’s Form G-37.
From about June 27, 2006m to June 6, 2008, the firm failed to report eight instances in which is had participated in negotiated muni underwriting activities, FINRA said.
Dealers are required to complete the form with the names of any issuers with which it has engaged in municipal business as well as the type of transaction and the firm’s role in it.
Neither thinkorswim nor Scott & Stringfellow admitted or denied the charges. Officials at thinkorswim could not be reached for comment, and an employee at Scott & Stringfellow who declined to give her full name said the firm does not comment on regulatory matters.