Morgan Stanley SEC Issued Cease-and-Desist For Short Selling Breaches

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Morgan Stanley got a $5 million penalty and a cease-and-desist order for breaching short selling rules. They played the half long half short game, the Securities and Exchanges Commission (SEC) just said, and then reported the closed longs as only longs. They say: “According to the SEC’s order, the structure of Morgan Stanley’s prime brokerage swaps business resulted in violations of Reg SHO. As set forth in the order, Morgan Stanley hedged synthetic exposure to swaps by purchasing or selling the securities referenced in the swaps, and it separated its hedges into two aggregation units – one holding only long positions, and the other holding only short positions. According to the order, Morgan Stanley was able to sell its hedges on the long swaps and mark them as “long” sales without concern for Reg SHO’s short sale requirements.” They specifically say Morgan Stanley violated Rule 200(g) of Reg SHO with…

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