Yet another Morgan Stanlay trader lands an FSA fine for practice called "pre-hedging"

Discussion in 'Wall St. News' started by ASusilovic, May 26, 2009.

  1. No question as to where the top brass at Morgan Stanley stand on the issue of financial market abuse. The bank is a staunch supporter of the FSA new “get tough” policy.

    Already this month alone we have seen a MOST credit derivatives trader, Matthew Piper, fined £105,000 and banned for life, while the bank then shopped a hapless commodities trader, David Redmond, who momentarily lost $10m in a post-lunch alcoholic haze. He landed a two-year ban.

    Now we learn that a MOST equity trader, Nilesh Shroff, has been declared not to be “fit and proper” and fined £140,000 for a practice the FSA calls “pre-hedging.”

    This, it transpires, is actually “front-running” — the age-old brokerage scam of dealing ahead of a customer whose order is known.

    In Shroff’s case, the trader took details of a programme trade planned by “Mr B” at “Customer A” and then sent out waves of orders on behalf of the bank before executing the customer’s trades.

    To: Nilesh Shroff
    Number: NAS01059
    Date: 22 May 2009
    TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS ("the FSA") gives you, Nilesh Shroff, final notice about the following action:
    The FSA gave Nilesh Shroff a Decision Notice on 12 May 2009 which notified him that, for the reasons set out below, the FSA had decided to impose on Nilesh Shroff:
    a prohibition order pursuant to section 56 of the Financial Services and Markets Act 2000 ("the Act"), prohibiting Mr Shroff from performing any function in relation to any regulated activity carried on by any authorised or exempt person or exempt professional firm on the grounds that Mr Shroff is not a fit and proper person; and
    a financial penalty of £140,000 pursuant to section 66(2)(b) of the Act for being knowingly concerned in a contravention by Morgan Stanley UK Ltd ("Morgan Stanley") of Principle 6 (Customers’ interests) of the FSA’s Principles for Businesses (the “Principles”). Mr Shroff was solely responsible for that contravention. For the avoidance of doubt, neither Morgan Stanley
    nor companies related to it, nor any other individuals employed by it are subject to criticism as a result of the facts referred to in this Notice.
    Mr Shroff has confirmed that he will not be referring the matter to the Financial Services and Markets Tribunal. Accordingly, for the reasons set out below and having agreed with Mr Shroff the facts and matters relied on, the FSA imposes a prohibition order in the above terms and a financial penalty of £140,000 on him. The prohibition order has effect from 26 May 2009.
    Mr Shroff has agreed to settle at an early stage of the FSA's investigation. He therefore qualifies for a 30% (stage 1) reduction in penalty, pursuant to the FSA's executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £200,000 on him.
    The FSA has concluded, on the basis of the facts and matters described below, that Mr Shroff is not a fit and proper person to perform any functions in relation to regulated activities carried on by any authorised persons because he has fallen below minimum regulatory standards in terms of honesty and integrity with respect to FSA regulated activities.
    In summary, while employed at Morgan Stanley as executive director, risk-trading programme, Mr Shroff disadvantaged Morgan Stanley’s clients on seven occasions between June and October 2007 by partially ‘pre-hedging’ programme trades without the clients’ consent. He did so in the knowledge that such pre-hedging was expressly prohibited by Morgan Stanley’s policies and that the likely result would be to disadvantage Morgan Stanley’s clients. Five of the clients were categorised as intermediate customers and Mr Shroff’s failure to treat them fairly thus caused Morgan Stanley to breach Principle 6.
    This pre-hedging caused the mid-prices of most of the stocks traded in to move against the client before the trade was struck. This caused detriment to the clients and by definition to the underlying investors in the clients’ funds.
    The FSA views Mr Shroff’s conduct as serious because:
    He abused his position of responsibility as a senior trader and the trust placed in him by clients and by his employer.
    Out of the ten relevant trades between June and October 2007 examined by Morgan Stanley, Mr Shroff pre-hedged seven trades. His misconduct was therefore repeated.
    Mr Shroff was aware of FSA guidance and Morgan Stanley’s policies in relation to pre-hedging but nonetheless he breached them.
  2. cmon, real trading is hard. 1 out of 100 can do it.

    how are these guys to make a decent living if they cant steal now and again.

    get real.

    you have a tim sykes who claims he makes 78978978 % on his trades, but he sells silly ass DVD's and a tout service. Something don't smell right there either.

    Hey sykes, splain that,