(RTTNews) – The Securities and Exchange Commission Wednesday announced that Morgan Stanley has agreed to pay $5 Million for violations of Regulation SHO, the regulatory framework governing short sales.
According to the SEC’s order, the structure of Morgan Stanley’s prime brokerage swaps business resulted in violations of Reg SHO. As set forth in the order, Morgan Stanley hedged synthetic exposure to swaps by purchasing or selling the securities referenced in the swaps, and it separated its hedges into two aggregation units – one holding only long positions, and the other holding only short positions. According to the order, Morgan Stanley was able to sell its hedges on the long swaps and mark them as “long” sales without concern for Reg SHO’s short sale requirements.
Market participants cannot disregard the rules of the road established by Reg SHO for all short sales,” said Daniel Michael, Chief of the Complex Financial Instruments Unit. “For many years, Morgan Stanley has improperly relied on Reg SHO’s aggregation unit exception, resulting in orders being mismarked for countless transactions.”
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