Morgan Stanley fined over $120m mismark
The UK Financial Services Authority has fined Morgan Stanley £1.4 million for failing to supervise one of its prop traders, allowing him to mismark a portfolio of illiquid credit products by $120 million last year.
The bank discovered in May 2008 that Matthew Piper, a credit trader on the bank's prop trading team, had failed to mark down his portfolio of credit derivatives, reportedly options on the Markit CDX credit index, as rising volatility and falling liquidity affected their value.
Piper was the bank's only market-maker in these products, and his books were not independently supervised, the FSA said, adding there was no clear line of supervision. In addition, a stress test introduced in November 2007 to make up for the lack of other valuation "was inadequate, wrongly applied and inaccurately described". The bank also failed to pay attention to complaints by counterparties that products were being wrongly valued.
Morgan Stanley benefitted from paying the fine early - it would otherwise have been £2 million, the FSA said. Piper was also fined £105,000 and banned from regulated financial activity for "deliberate misconduct", including mismarking and attempting to conceal the mismarks. The mismarking existed "for approximately five months", the FSA said.
See also: Morgan Stanley trader mis-marking for months
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Bank of Communications moves early to meet TLAC requirements
China Construction Bank becomes last China G-Sib to release TLAC plans
Most read
- Top 10 operational risks for 2024
- Japanese megabanks shun internal models as FRTB bites
- Market for ‘orphan’ hedges leaves some borrowers stranded