Thursday, August 22, 2013

Morgan Stanley Fined over Excessive Bond Markups

By Tim Dulaney, PhD and Tim Husson, PhD

Morgan Stanley has been fined by the Financial Industry Regulatory Authority (FINRA) for "failing to provide best execution in certain customer transactions involving corporate and agency bonds, and failing to provide a fair and reasonable price in certain customer transactions involving municipal bonds" according to today's news release.  The story has also been picked up by the Bond Buyer and Law360, and you can find the complete acceptance, waiver and consent (PDF).

This action reflects the increased attention being paid to markups on bond trades.  We spent an entire week covering municipal bond markups here on the SLCG Blog, highlighting our colleagues' recent research paper showing billions of dollars in excessive markups charged on US municipal bond transactions.  Today's action might be just the beginning in a larger crackdown on these excessive charges.

This action related to 165 municipal bond transactions, as well as 116 corporate and agency bond transactions.  We have analyzed those municipal bond transactions and compared their markups to those in the wider municipal bond market -- you can find those results in our followup post.

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