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FSA fines Morgan Stanley £1.4m

The FSA has fined Morgan Stanley £1.4 million for trader mismarking which led the firm to make a $120m negative adjustment in June 2008.

The regulator has also banned Matthew Sebastian Piper, a former trader at the firm, and fined him £105,000 in relation to the mismarking.

The FSA says the firm failed to effectively use the controls it had in place for dealing in illiquid financial products. It also failed to ensure adequate supervision of Piper’s books and as a result, did not price certain positions accurately. Further, the firm failed to prevent or detect the mismarking in a timely manner.

It also found that the former investment bank failed to respond quickly enough to changing conditions in the credit markets, allowing Piper to deliberately mismark the positions he traded on behalf of Morgan Stanley and then allowing him to hide losses by manipulating the processes the firm had in place to monitor trading activity.

FSA director of enforcement Margaret Cole says: “Market confidence is likely to be damaged by sudden and unexpected write downs and revaluations of securities. Firms must take care to ensure their traders operate within a proper control environment.

“Piper has been banned because his misconduct was deliberate, frequent and repeated over a six-month period. He was a senior and experienced trader who held a position of trust at the firm. This was clearly a serious breach of the standards of behaviour we expect of approved persons.

“Firms must take care to allocate sufficient resources to supervise adequately those activities that they choose to undertake. Where a firm fails to act accordingly the FSA will take action against the firm.”

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