NOTICE OF DISCIPLINARY ACTION

MEMBER:

Morgan Stanley & Co. LLC

CME RULE VIOLATION:

Rule 432. General Offenses

It shall be an offense:

Q. to commit an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange;

W. for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.

FINDINGS:

Pursuant to an offer of settlement in which Morgan Stanley & Co. LLC (“Morgan Stanley”) neither admitted nor denied the rule violation upon which the penalty is based, on June 8, 2016, a Panel of the CME Business Conduct Committee (“Panel”) found that it had jurisdiction over Morgan Stanley pursuant to Rules 400 and 402 as the conduct occurred while Morgan Stanley was a CME member. The Panel also found that on June 12, 2014, following an error in a system upgrade and a manual input error, a risk-based automated trading system deployed by Morgan Stanley calculated risk parameters much larger than intended. Although Morgan Stanley’s safeguards automatically disabled the automated trading system, a trader manually overrode the safeguards, resulting in the purchase and sale of a large number of Eurodollar futures contracts, causing price movement in several Eurodollar contract months. The automated trading system executed trades based on the erroneous risk parameters on three separate occasions, totaling approximately two minutes and 38 seconds during a 24-minute timeframe on the same trade date, before Morgan Stanley deactivated the system and manually traded out of the erroneously acquired positions, taking care to minimize market impact. Following this occurrence, Morgan Stanley enhanced its safeguards and procedures.

The Panel concluded that as a result of the foregoing, Morgan Stanley violated Rule 432.Q. and Rule 432.W.

PENALTY:

In accordance with the settlement offer, the Panel fined Morgan Stanley $92,500. In coming to accept Morgan Stanley’s offer of settlement, the Panel considered that Morgan Stanley immediately reported the incident to the Exchange.

EFFECTIVE DATE:

June 10, 2016