• NOTICE OF DISCIPLINARY ACTION

      • #
      • 17-CH-1707
      • Notice Date
      • 01 December 2017
      • Effective Date
      • 04 December 2017
    • MEMBER FIRM:   Morgan Stanley & Co. LLC

      CME RULES:    930. PERFORMANCE BOND REQUIREMENTS: ACCOUNT HOLDER LEVEL

      E.  Calls for Performance Bond

      1.     Clearing members must issue calls for performance bond that would bring an account up to the initial performance bond requirement: a) when performance bond equity in an account initially falls below the maintenance performance bond requirement; and b). subsequently, when performance bond equity plus existing performance bond calls in an account is less than the maintenance performance bond requirement.  Such calls must be made within one business day after the occurrence of the event giving rise to the call. Clearing members may call for additional performance bond at their discretion. Notwithstanding the foregoing, a clearing member is not required to call for or collect performance bond for day trades.

      F.  Release of Excess Performance Bond

      Subject to exceptions granted by Exchange staff, clearing members may only release performance bond deposits from an account if such deposits are in excess of initial performance bond requirements.

      N.  OTC Derivatives Undermargined Capital Charge

      Clearing members must compute an OTC derivatives undermargined capital charge for customer and noncustomer accounts containing cleared swap positions when performance bond calls on the accounts have been outstanding for more than three business days. The OTC derivatives undermargined capital charge is calculated as the amount of funds required in such account to meet maintenance performance bond requirements less account equity and acceptable performance bond collateral. Provided, to the extent a deficit is excluded from current assets in the net capital computation, such amount shall not also be deducted under this rule.

      980. REQUIRED RECORDS AND REPORTS

      B. Each clearing member shall maintain an adequate accounting system, internal accounting controls, and procedures for safeguarding customer and firm assets. This includes, but is not limited to, the following:

          1. Preparation and maintenance of complete and accurate reconciliations for all accounts; 

      FINDINGS:   Pursuant to an offer of settlement in which Morgan Stanley & Co. LLC neither admitted nor denied the rule violations upon which the penalty is based, on December 1, 2017, the Clearing House Risk Committee found that Morgan Stanley & Co. LLC violated CME Rules 930.E.1., 930.F.,  930. N., and 980.B.1.

      PENALTY:    In accordance with the settlement offer, the Clearing House Risk Committee imposed a $50,000 fine.

      EFFECTIVE DATE:    December 4, 2017