HK regulator fines Morgan
Stanley, cites internal control failures
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[August 24, 2016]
HONG KONG (Reuters) - Hong Kong's
securities regulator said it fined and reprimanded the local securities
unit of Morgan Stanley for internal control failures related to
disclosure of short-selling orders and comprehensive documentation of
electronic trading services.
Morgan Stanley Hong Kong Securities Ltd was fined HK$18.5 million ($2.4
million) related to internal control failures between 2013 and 2016, the
Securities and Futures Commission (SFC) said in an e-mailed statement on
The breaches of Hong Kong's code of conduct included failure to avoid
"conflicts of interest between principal and agency trading" and
non-compliance with certain disclosures in short-selling orders, the SFC
said, as well as failure to properly document its electronic trading
Morgan Stanley declined to comment.
The SFC said the U.S. bank cooperated with the watchdog in resolution of
its concerns, and had agreed to hire an outside firm to review its
The regulator said during an investigation of irregular price movements
of two stocks on June 21, 2013, it found the bank's Hong Kong securities
unit traders responsible for agency trade - or external clients - also
dealt in the stocks on a principal basis, which refers to the firm's own
Under SFC rules, a firm should avoid "apparent and potential conflicts
of interest by establishing and maintaining adequate 'Chinese Walls'",
separating dealers handling discretionary orders from those handling
principal accounts, it said.
SFC has been aggressively clamping down on operational and control
failures in banks' trading businesses over the past year.
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The corporate logo of financial firm Morgan Stanley is pictured on a
building in San Diego, California September 24, 2013. REUTERS/Mike
The latest action comes two months after the Hong Kong regulator publicly
censured two units of Bank of America for breaches of the city's takeover codes
in two deals last year.
In February, the SFC also censured Goldman Sachs for infringing parts of the
takeover code while acting as financial adviser to Wing Hang Bank Ltd in a $5
billion offer for the Hong Kong lender in 2014.
($1 = 7.7531 Hong Kong dollars)
(Reporting by Elzio Barreto and Sumeet Chatterjee; Additional reporting by
Michelle Price; Editing by Muralikumar Anantharaman and Kenneth Maxwell)
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