 The Securities and Exchange Commission, in a May 9
announcement that Morgan Stanley had agreed to pay out nearly $8
million for failing to provide best execution on retail
over-the-counter securities trades from 2001 to 2004, faulted the
firm's automated market-making system for allowing undisclosed
markups and markdowns to be embedded in some OTC orders. "By
recklessly programming its order execution system to receive
amounts that should have gone to retail customers, Morgan Stanley
violated its duty of best execution and defrauded its customers,"
Linda Thomsen, director of the SEC's division of enforcement, said
in a statement.
Morgan Stanley, which neither admitted nor denied guilt, agreed
to retain an independent compliance consultant to review its
automated order handling practices. (The SEC order was excerpted in
the May 21 Securities Industry News.)
"The duty of best execution is not a static concept," said
Elaine Greenberg, associate regional director of the SEC's
Philadelphia office, "but rather one that evolves with changes in
technology." She might have been talking not just about best
execution, but also risk management as it applies to
technology-driven areas like electronic trading. |
