Morgan Stanley & Co. LLC.
CBOT RULE VIOLATIONS:
Rule 526. Block Trades (in part)
A. A block trade must be for a quantity that is at or in excess of the applicable minimum threshold.
D. The price at which a block trade is executed must be fair and reasonable in light of (i) the size of the block trade, (ii) the prices and sizes of other transactions in the same contract at the relevant time, (iii) the prices and sizes of transactions in other relevant markets, including without limitation the underlying cash market or related futures markets, at the relevant time, and (iv) the circumstances of the markets or the parties to the block trade.
F. Unless otherwise agreed to by the principal counterparties to the block trade, the seller or, in the case of a brokered transaction, the broker handling the block trade, must ensure that each block trade is reported to the Exchange within five minutes of the time of execution; except that block trades in interest rate futures and options executed outside of Regular Trading Hours (7:00 a.m. – 4:00 p.m. Central Time, Monday – Friday on regular business days) and Housing and Weather futures and options must be reported within fifteen minutes of the time of execution.
Rule 536. Recordkeeping Requirements for Pit, Globex and Negotiated Trades (in part)
A.1. At the time of execution, every order received from a customer must be in the form of a written or electronic record and include an electronic timestamp reflecting the date and time such order was received on the floor of the Exchange and, except as provided in Section C, must identify the specific account(s) for which the order was placed. Such record shall also include an electronic timestamp reflecting the date and time such order was modified, returned, confirmed or cancelled.
Market Regulation Advisory Notice RA1203-3 Block Trades
5. Block Trade Price Reporting Requirements
b) Reporting Obligation (in part)
The failure to submit timely, accurate and complete block trade reports may subject the party responsible for the reporting obligation to disciplinary action.
Market Regulation Advisory Notice RA1303-3RR (in part)
3. Time and Prices of Block Trades
The trade price must be consistent with the minimum tick increment for the market in question. Additionally, each outright transaction and each leg of any block eligible spread or combination trade must be executed at a single price.
Pursuant to an offer of settlement in which Morgan Stanley & Co. LLC (“Morgan Stanley”) neither admitted nor denied the rule violations upon which the penalty is based, on October 28, 2014, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee found that it has jurisdiction over Morgan Stanley because it is a CBOT member and between February 18, 2010, and March 1, 2012, Morgan Stanley, through its employees, executed multiple block trades for customers in various CBOT contracts that were not reported to the Exchange within the applicable time limit following execution. Morgan Stanley employees also reported inaccurate execution times for block trades during the same time period. In so doing, the Panel concluded that Morgan Stanley violated rule 526.F.
Additionally, the Panel found that Morgan Stanley failed to maintain accurate written or electronic records of block trade transactions during this same time period. Specifically, on one or more occasions Morgan Stanley did not have order tickets or other acceptable records of block trades the firm executed for customer orders. In so doing, the Panel concluded that Morgan Stanley violated Rule 536.A.
The Panel further found that on February 18, 2010, Morgan Stanley executed an inter-commodity spread including 5,200 10-Year U.S. Treasury Note futures contracts and 3,000 30-Year U.S. Treasury Bond futures contracts in which one leg of the spread did not meet the minimum quantity threshold requirements. The Panel concluded that Morgan Stanley violated Rule 526.A.
Finally, the Panel found that on three occasions in May 2013, Morgan Stanley employees executed 10-Year Treasury Note options on futures spread block trades where each leg of the spread was not executed at a single price. In so doing, the Panel concluded that Morgan Stanley violated CBOT Rule 526.D.
In accordance with the settlement offer, the Panel ordered Morgan Stanley & Co. LLC to pay a fine of $80,000.
October 30, 2014