Morgan Stanley and the Great $10 Bil. Trade Debacle

NYSE Regulation fined Morgan Stanley $300,000 for a failure to provide sufficient inhibitors and blocks within its trading system that led to a massive botched trade.

According to the regulator, on the morning of September 1, 2004 a Morgan Stanley trader received instructions from a customer to unwind a portion of an existing swap, with an affiliate of the firm acting as the counterparty. To hedge its position, the affiliate took a short position in the shares of common stock underlying the basket. The mistake came about when the trader entered an order to buy 100,000 units of the basket to cover a portion of the affiliate's short position, not realizing that the tool used to create the basket had a built in multiplier of 1,000. The result was a basket with a value of $10.8 billion instead of $10.8 million.

Posted by Cory Levine at 05:18 PM

This is a public forum. CMP Media and its affiliates are not responsible for and do not control what is posted herein. CMP Media makes no warranties or guarantees concerning any advice dispensed by its staff members or readers.

Community standards in this comment area do not permit hate language, excessive profanity, or other patently offensive language. Please be aware that all information posted to this comment area becomes the property of CMP Media LLC and may be edited and republished in print or electronic format as outlined in CMP Media's Terms of Service.

Important Note: This comment area is NOT intended for commercial messages or solicitations of business.