Morgan Stanley Smith Barney to pay USD490,000 to settle CFTC charges
Morgan Stanley Smith Barney (MSSB), a registered futures commission merchant (FCM), is to pay USD490,000 for violating CFTC rules relating to segregated and secured account funds.
The CFTC charged MSSB with violating the regulations governing secured funds of foreign futures and option customers, commingling customer and firm funds, failing to prepare accurate daily computations of its segregated and secured funds, failing to properly title account statements for four customer segregated accounts, and failing to diligently supervise its employees handling of matters related to its business as a CFTC registrant.
None of the violations resulted in any customer losses, according to the CFTC’s order. As well as imposing the civil monetary penalty, the CFTC has ordered MSSB to cease and desist from violating the Commodity Exchange Act and CFTC Regulations, as charged.
Specifically, the CFTC’s order finds that on 8 April 2013 MSSB erroneously transferred approximately USD16m from a customer secured funds bank account resulting in a deficiency in MSSB’s secured funds of approximately USD9.27m. MSSB discovered the error the next day and cured the deficiency, the order finds.
After its secured deficiency in April 2013, MSSB independently engaged KPMG to review its policies and procedures with respect to segregated and secured accounts. KPMG subsequently issued a report recommending changes to MSSB’s policies and procedures, which MSSB has substantially implemented.
The CFTC’s order also finds that for approximately a six-month period in 2012, MSSB commingled customer segregated and firm funds in a customer segregated bank account.
In addition, for approximately an eight-month period in 2012, MSSB failed to prepare accurate daily computations of its segregated and secured funds. None of the errors caused MSSB to fall below its required segregated or secured funds; however, MSSB was required to refile 120 daily statements as a result of the errors.
Finally, the CFTC’s order finds that during several months in 2012, account statements for four MSSB segregated accounts were improperly titled as customer secured accounts.
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