UBS and Morgan Stanley Face Regulatory Fines Over their Failure to Report Transactions

FINRA has fined UBS and Morgan Stanley for failing to report transactions. Transaction reports affect share prices and can impact investors’ decisions to buy or sell. This is especially true of block transactions, which have a face value of $5,000,000 or more. These huge transactions are especially likely to impact share prices. 

Both Morgan Stanley and UBS have previously been fined by FINRA for failing to report transactions. These fines were evidently not enough to persuade the firms to comply with FINRA regulations. 

Which FINRA Rules Did UBS and Morgan Stanley Allegedly Violate? 

Both firms allegedly violated FINRA Rule 3110. According to FINRA Rule 3110, firms must design supervisory systems that will ensure the firm’s compliance with FINRA rules. These systems should catch red flags of misconduct. Designated supervisors are required to review any suspicious transactions and report them to the appropriate authority. 

• UBS allegedly also violated FINRA Rule 6730, which states that firms must report certain transactions to the Trade Reporting and Compliance Engine (TRACE). TRACE-eligible transactions include debt securities and certain restricted securities. 
• According to FINRA, Morgan Stanley brokers violated FINRA Rule 2360(b)(5), which requires firms to report large numbers of options contracts in a single account. 

Morgan Stanley Alleged Failure to Report Transactions 

Between April 2018 and January 2021, Morgan Stanley allegedly deleted approximately 28,109 expiring over-the-counter option positions from its reports to the Large Options Positions Reporting system (LOPR). FINRA requires that firms report accounts with 200-plus options contracts on the same side of the market with the same underlying security or index.

FINRA uses LOPR to look for stock market manipulation. With large numbers of contracts, owners can more easily affect the prices of put and call options. 

In April 2018, the firm implemented a new system which allegedly improperly deleted OTC option positions on their expiration dates. Morgan Stanley allegedly had not tested the new system to ensure it properly handled reporting, despite its previous disciplinary record for this exact issue. 

FINRA fined Morgan Stanley $225,000, according to their Acceptance, Waiver, and Consent agreement. 

Morgan Stanley: History of Misconduct and Failure to Report 

In 2016, Morgan Stanley consented to a fine of $50,000 for failing to report accounts with 200-plus options contracts on the same side of the market with the same underlying security or index. Failing to report these large numbers of options contracts violates FINRA Rule 2360(b)(5). 

Morgan Stanley also allegedly deleted approximately 21,374 expiring over-the-counter positions from the LOPR, according to the 2016 allegations. 

UBS’s Alleged Failure to Report Transactions 

According to the Acceptance, Waiver, and Consent agreement (AWC), UBS allegedly failed to timely report 1,680 agency debt securities and 1,830 transactions in securitized products. FINRA alleges these failures were due to the manual handling of orders by traders and salespersons. 

These reports allegedly included 424 large block transactions in agency debt securities and 340 large block transactions in corporate debt securities. 

FINRA fined UBS $350,000 and censured the firm. UBS agreed to revise the firm’s supervisory systems. 

UBS History of Misconduct and Failure to Report 

UBS has a history of these types of allegations—FINRA pointed out in the AWC that “UBS has been aware of its late reporting issues since at least 2017.” In spite of this, the firm allegedly failed to train supervisors and staff regarding TRACE reporting requirements. 

• In 2018, the firm entered into an AWC in which they consented to the findings that they failed to report 239 transactions. FINRA fined UBS $50,000.
• Just one year earlier, UBS consented to the findings that they failed to report 43 large block transactions. FINRA fined the firm $32,500. 

Investors Should Know their Firms’ Disciplinary History 

Firms that do not follow FINRA regulations risk losing their investors’ money. Investors should be wary of working with firms that do not ensure their brokers follow FINRA rules—in 2021, failure to supervise was the third-most common type of dispute in arbitration cases. FINRA arbitration is usually the only recourse investors have if they want to recover the money they lost on bad investments. 

If you believe your firm failed to supervise, contact Kurta Law for a free case evaluation. Our securities attorneys have decades of experience handling failure to supervise arbitration cases. We will help you get your investment portfolio back on track as quickly as possible.