Morgan Stanley to pay $7.9 million

Morgan Stanley & Co. Inc. will pay $7.9 million for its failure to provide best execution to certain retail orders for over-the-counter securities, the Securities and Exchange Commission announced today. New York-based Morgan Stanley embedded undisclosed mark-ups and mark-downs on certain retail OTC orders processed by its automated market-making system and delayed the execution of other retail OTC orders, for which Morgan Stanley had an obligation to execute without hesitation. All of Morgan Stanley’s revenues from its undisclosed mark-ups and mark-downs will be distributed back to the injured investors through a distribution plan, according to the SEC. Without admitting or denying the cmmission’s findings, Morgan Stanley consented to the entry of an order by the Commission that censures Morgan Stanley. The order also requires Morgan Stanley to pay disgorgement of $5,949,222 and prejudgment interest thereon of $507,978, and imposes a civil money penalty of $1.5 million. “By recklessly programming its order execution system to receive amounts that should have gone to retail customers, Morgan Stanley violated its duty of best execution and defrauded its customers,” said Linda Chatman Thomsen, Director of the regulator’s Division of Enforcement.