FSA bans third ex-Morgan Stanley trader
A former Morgan Stanley trader has been fined £140,000 and banned from trading by the City regulator in the third case to involve the US investment bank this month.
The Financial Services Authority ruled today that Nilesh Shroff, a former senior trader at Morgan Stanley, had 'deliberately disadvantaged' the bank's customers.
Mr Shroff "disadvantaged his clients on seven occasions between June and October 2007 by partially 'pre-hedging' programme trades without the clients' consent".
Pre-hedging involves a trader using information provided by a customer to make a trade for the bank before completing a trade for the customer.
The case is the third this month to involve Morgan Stanley – although the bank was cleared of any wrong doing in two of the three cases. Last week the City regulator banned a former Morgan Stanley commodities trader for concealing $10m (£6.4m) worth of trades he made after a three-and-a-half hour lunch. Two weeks ago the bank itself was fined £1.4m after a rogue credit trader allegedly hid losses over a six month period. The trader was fined £105,000.
The FSA said today that "where customers instructed Shroff to buy particular stocks, he bought those stocks for the firm first, causing the price to increase before he executed the customers' trades.
"Where the customer order was to sell he first sold on behalf of the firm, decreasing the price."
Mr Shroff knew such unauthorised pre-hedging was expressly prohibited by the FSA and Morgan Stanley's policies and was not in his clients' interests, the FSA said.
A spokesman for Morgan Stanley said: "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."
Mr Shroff was dismissed by Morgan Stanley in December 2007 for gross misconduct. Mr Shroff co-operated with the FSA's investigation.