Morgan Stanley, Merrill Lynch urged to strengthen operations procedure

The headquarters of the Financial Supervisory Service (FSS) in Seoul / Yonhap

By Anna J. Park

The Financial Supervisory Service (FSS) has called on the Seoul branches of Morgan Stanley & Co. International and Merrill Lynch International to strengthen operations management.

According to the FSS on Monday, the state-run financial watchdog agency notified the two firms of management precautions earlier this month, pointing out the need for strengthened management control over the reporting of transaction orders made at independent trading units of their overseas subsidiaries.

The FSS' public disclosure information on management cautions stated that both firms were pointed out as having errors in the reporting of transaction orders and executions by independent trading units of overseas subsidiaries under the control of the Seoul branches. The financial authorities' disclosure reports also show the two firms were found to have deficiencies in the systematic management of daily net assets and margin balance forms as well as inadequate management of margin trading records.

Regarding such points, the FSS emphasized the need to strengthen management systems by regularly verifying the integrity of related data, such as net assets and the margin trading records of independent trading units of overseas subsidiaries, and internal transaction records between trading units.

In addition, Morgan Stanley's Seoul branch has been found to have deficiencies in the internal review and verification process, when it comes to handling subsequent modifications and stating reasons of correcting erroneous orders for stock trading in response to requests by customers or overseas subsidiaries.

The FSS urged the firm to strengthen its compliance monitoring department, in order to beef up the review and verification process to ensure any errors related to stating reasons for modifying trading orders should not occur.