While Shroff was a senior trader at Morgan Stanley, the FSA found that he partially pre-hedged trades on seven occasions between June and October 2007 without clients’ consent.
‘Pre-hedging’ refers to trading by a broker for his firm’s benefit in advance of carrying out a trade for his customer, using information provided by that customer.
The regulator says where customers instructed Shroff to buy particular stocks, he bought those stocks for the firm first, causing the price to increase before he executed the customers’ trades. Where the customer order was to sell he first sold on behalf of the firm, decreasing the price.
Following its own investigation, Morgan Stanley dismissed Shroff for gross misconduct on December 28, 2007.
FSA director of enforcement Margaret Cole says: “Nilesh Shroff has been banned from trading because he repeatedly abused his position of responsibility as a senior trader and the trust placed in him by clients and by his employer. He was aware of FSA guidance and Morgan Stanley’s rules in relation to pre-hedging but nonetheless he broke them.
“As an experienced trader, he would also have known that his orders were likely to disadvantage his clients. The FSA will take action against those who act without honesty and integrity and who do not follow our rules.”