Morgan Stanley Tightens Order Entry Process Amid Firings Over Miscoded Trades
Morgan Stanley Wealth Management is updating its order entry systems to restrict brokers from switching production numbers on trades and providing additional training around coding of transactions, according to an internal memo.
“As part of ongoing enhancements to the firm systems, we are implementing Order Entry (OE) validations that will restrict the ability to change JPNs/FA numbers for individual orders,” operations staff wrote in the memo. “The purpose of the training is to provide background, guidance, and details related to the system changes.”
It was not clear when the changes would go into effect. The training for the Great Lakes, Mid Atlantic & New England regions was set for June 9, according to the memo.
A spokeswoman for Morgan Stanley declined to comment on the update, whether it was prompted by the internal review or if the wirehouse is facing any regulatory inquiry tied to its monitoring of brokers’ order entry.
Thomas B. Lewis, a lawyer with Stevens & Lee in New Jersey who has represented Morgan Stanley brokers under review, said he was glad to see the change and hoped it would prevent future cases of “innocent” mistakes.
The changes also may be an indication that Morgan Stanley is responding to regulatory questions, Lewis said.
“Maybe audits were conducted and flags were raised that are requiring Morgan Stanley to be proactive in making sure it doesn’t happen again,” Lewis said.
Meanwhile, Morgan Stanley’s probe appears to be ongoing as it has conducted compliance interviews with at least two brokers on the West Coast in the past two weeks about trades that in one case dated back almost eight years, according to two sources with knowledge of the matter.
In a sign that Finra is taking actions against individuals, a 35-year industry vet in February agreed to a bar from the brokerage industry rather than cooperate with the regulator’s investigation.
Brokers who have been fired over the alleged miscoding have said in their defense that they in some cases were acting at the request of the senior broker or manager, or that the issues were due to clerical errors.
In a sign of the wide scope of the violations, the terminations, which started in November with a round of 10 firings, have affected longtime industry veterans, producing managers and multimillion-dollar producers. In May, Morgan Stanley fired a Forbes “Best-in-State” advisor in Rhode Island who managed $652 million in client assets and had spent all of his nearly two-decade career with the firm.
The initial investigation was prompted by complaints of underpayments by at least one retired broker.
In 2019, an arbitration panel found that Morgan Stanley breached its agreement to credit a retired broker with the full revenue she was allegedly entitled to under its Former Advisor Program (FAP), but denied the amount she sought in damages.