On December 10, 2014, the US Securities and Exchange Commission (“SEC”) penalized Morgan Stanley & Co. LLC for violating the market access rule in failing to uphold credit limits when a rogue trader engaged in fraudulent trading of Apple shares. The SEC’s market access rule requires broker-dealers to have adequate risk controls in place before providing customers with access to the markets. A SEC investigation found that Morgan Stanley did not uphold necessary risk management controls in 2012 when it provided market access to its brokerage customer, Rochdale Securities. Rochdale was given a $200 million daily trading limit with the bank. However Rochdale nearly quadrupled the trading limit in  order to allow their trader, Mr. Miller, to take on a risky position in Apple shares, without any action by Morgan Stanley to implement its $200 million limit.

The SEC enforcement action is available at:

http://www.occ.gov/static/cra/nov14.html.