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CFTC Fines Morgan Stanley Capital Group, UBS Securities

US Commodity Futures Trading Commission (CFTC) has asked Morgan Stanley Capital Group and UBS Securities to pay $14m and $200,000 civil monetary penalties respectively, in connection with Morgan Stanley concealing from the New York Mercantile Exchange (NYMEX) the existence of a large Trade at Settlement block crude oil trade and UBS Securities aiding and abetting that concealment.

The CFTC orders also require Morgan Stanley and UBS to cease and desist from further violations of the Commodity Exchange Act and to comply with certain undertakings.

The CFTC orders found that, in early February 2009, a Morgan Stanley trader and a UBS broker discussed an opportunity for Morgan Stanley to act as a counterparty to a third-party UBS customer to purchase a block of March 2009 crude oil futures contracts and to sell a block of a similar quantity of April 2009 contracts on the NYMEX.

The CFTC order further found that Morgan Stanley’s and UBS’ actions concealed the occurrence of the trade from the NYMEX, contrary to NYMEX Rule 6.21C(6), which provided that the ‘buyer and seller must ensure that each block trade is reported to the exchange within five minutes of the time of execution.’

In addition to the civil monetary penalties, Morgan Stanley agreed for the next three years to 1) notify all Morgan Stanley traders of significant new and modified trading rules; 2) administer a yearly enhanced training program regarding CFTC and exchange trading rules for all appropriate Morgan Stanley employees and 3) implement, within 90 days, enhanced surveillance of TAS block trades on the NYMEX.