FINRA Sanctions Firm for Best Execution and Fair Pricing Violations in Bond Markets (with Lofchie Comment)

FINRA found that Morgan Stanley failed to use reasonable diligence to ensure that the purchase or sale price of debt securities to customers was "as favorable as possible under current market conditions" in 116 customer transactions involving corporate and agency bonds. Additionally, in 165 transactions involving municipal bonds, Morgan Stanley allegedly failed to purchase or sell bonds at prices reasonably related to the fair market value of the subject security. FINRA fined the firm $1 million and ordered $188,000 in restitution plus interest.

Lofchie Comment: This is a bit of an odd disciplinary action in that (i) it covers a very long time period (about four years), (ii) the number of challenged transactions during that period is quite small given the length of the period covered, and (iii) the dollar amounts involved are likewise small both in total and as regards any individual transaction (as shown in the Appendices to the FINRA action). Based on the published disciplinary action, it is hard to tell what, if anything, the firm did incorrectly other than that FINRA disagreed with the prices charged.

See: FINRA Action; FINRA Press Release.