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Another former Morgan Stanley trader banned for misconduct
A former senior trader at Morgan Stanley has been banned and fined £140,000 by the Financial Services Authority (FSA) for deliberately disadvantaging his customers by 'pre-hedging' trades without their consent.
The FSA said Nilesh Shroff had been prohibited from performing any regulated function on the grounds that he is not fit and proper.
Shroff was found, while a senior trader at Morgan Stanley, to have disadvantaged his clients on seven occasions between June and October 2007 by partially 'pre-hedging' programme trades without the clients' consent.
Pre-hedging refers to trading by a broker for his firm's benefit in advance of carrying out a trade for his customer, using information provided by that customer.
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.
Meanwhile, where the customer order was to sell he first sold on behalf of the firm, decreasing the price.
The FSA said Shroff knew such unauthorised pre-hedging was expressly prohibited by the regulator and Morgan Stanley's policies, and was not in his clients' interests.
FSA director of enforcement Margaret Cole said: "Nilesh Shroff has been banned from trading because he repeatedly abused his position of responsibility as a senior trader and the trust placed in him by clients and by his employer.
"He was aware of FSA guidance and Morgan Stanley’s rules in relation to pre-hedging but nonetheless he broke them.
"As an experienced trader, he would also have known that his orders were likely to disadvantage his clients.
"The FSA will take action against those who act without honesty and integrity and who do not follow our rules."
Shroff qualified for a reduction in penalty as he agreed to settle at an early stage of the investigation. Were it not for this discount, the FSA would have imposed a financial penalty of £200,000.
Following its own investigation, Morgan Stanley dismissed Shroff for gross misconduct on 28 December 2007.
The FSA also fined Morgan Stanley & Co International £1.4m for failing to prevent trader mis-marking which led the firm to make a $120m negative adjustment last year earlier this month (May).
The regulator also banned another of the group's former traders David Connor Redmond for seeking to conceal his trading position last week (20 May).