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FSA bans another Morgan Stanley trader

Nick Clark
Wednesday 27 May 2009 00:00 BST
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The Financial Services Authority yesterday fined and banned a senior trader at Morgan Stanley for improper conduct, the third employee to fall foul of the regulator this month.

The UK markets watchdog imposed the £140,000 fine on Nilesh Shroff as well as banning him, "for deliberately disadvantaging his customers by 'pre-hedging' trades without their consent".

Pre-hedging refers to trading by a broker to benefit the firm before carrying out the trade for his customer, but using information that customer has provided.

The FSA found seven instances of Mr Shroff pre-hedging between June and October 2007. Morgan Stanley fired him for gross misconduct in the December of the same year.

A spokesman for the bank said yesterday: "Mr. Shroff deliberately and knowingly violated our policy on pre-hedging client trades. We took immediate action to address his misconduct, ultimately dismissing Mr. Shroff."

This is the third example of a Morgan Stanley trader being censured in May. One bank insider said the timing was coincidental as it covered three traders from different teams, and who had committed these acts at different times.

Last week, the FSA banned David Redmond, a commodities trader, for concealing his trading position in February last year, which potentially exposed the bank to a "significant loss".

Margaret Cole, the director of enforcement at the FSA, said Mr Redmond's conduct "showed a lack of honesty and integrity that falls short of the standards the regulator expects of approved persons". He was fired later that year.

The FSA made no criticism of Morgan Stanley, as it quickly identified the case and acted swiftly to remedy the situation.

This had not been the case on 13 May, when the bank was hit with a £1.4m fine after its systems and controls failed to prevent a trader from wrongly valuing his portfolio in June last year.

Proprietary trader Matthew Piper was fined £105,000 and banned after he deliberately mis-marked his positions, before attempting to hide losses by "manipulating the processes the firm had in place to monitor trading activity".

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