The NASD has fined Morgan Stanley $2.9 million for a wide array of violations. The two Morgan Stanley units in question, Morgan Stanley & Co. (MSCO) and Morgan Stanley DW (MSDW), broke NASD, SEC and MSRB regs involving reporting obligations, best execution, short sales, among other things, according to the regulator.

Morgan Stanley must also give the NASD regular reports outlining the corrective actions it is taking to ensure that each firm has adequate policies, procedures, systems and training needed to ensure future regulatory compliance.

The NASD fine comes just a few months after the SEC settled charges against the firm for lacking adequate procedures to prevent the misuse of non-public information. Morgan Stanley agreed to a censure and a $10 million fine in June as part of that settlement. In May, the Commission hit the firm with $15 million in civil penalties to settle charges that it destroyed and failed to produce tens of thousands of emails from a previous investigation.

In this case, the NASD charged that the two Morgan units violated a whole slate of federal securities laws, NASD and MSRB rules between 1999 and 2006.

"MSCO and MSDW had numerous types of reporting violations and the scope of those violations indicated a failure to adequately address compliance needs of the firms," said NASD executive vice president Tom Gira.

One of the most damaging violations involved MSCO, which consistently failed to properly track and report data to the Order Audit Trail System (OATS). For its part, MSDW was repeatedly unable to adequately price, sell and report corporate and municipal bond transactions. As a result, that unit will make nearly $30,000 in restitution payments to customers harmed by those failures.

One likely reason such shortfalls continued was that both MSCO and MSDW failed to implement effective supervisory systems and written supervisory procedures, which was another violation.

From there, the lesser violations read like a laundry list. The NASD found that MSCO reported thousands of Nasdaq transactions incorrectly or late, executed thousands of short sales without ensuring it could deliver or borrow the securities by the settlement date. It also failed to trade securities at the best available prices—a violation that will cost it nearly $5,000 in restitution payments to customers, as well as other trading violations.

In addition, the regulator found that MSDW didn’t send or sent late required documents to hundreds of customers in connection with municipal bond transactions, and didn’t report or incorrectly reported thousands of transactions in corporate and municipal bonds. It also neglected to enforce the firm's written supervisory procedures with respect to municipal bonds.

Even with the fine, things could have gone worse for the two Morgan Stanley firms, had they not voluntarily started cleaning up their respective messes.

"MSCO and MSDW also undertook independent, internal reviews to determine the causes and extent of their trade reporting problems, provided their findings to NASD, and were otherwise highly cooperative with NASD's investigation. The firms' cooperation is reflected in the sanctions," Gira also said.

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