In the movie Office Space, Initech employees decide to enrich themselves by skimming fractional amounts off transactions and pocketing it. Yesterday Morgan Stanley agreed to pay nearly $8 million to settle charges brought by the SEC that it had captured gains that rightfully belonged to customers by failing to offer them the best price available for stock they were purchasing. The official term for this is “failing to provide best execution” to customers. But we prefer to call it “The Office Space Trick.”
Here’s how the Wall Street Journal describes the skimming.
Morgan Stanley's automated system allowed the company to profit when it was able to obtain better prices than the best-publicized prices at the time, the SEC said. For instance, the complaint said, when the brokerage firm was able to buy a stock quoted at $10.01 for $10, it would charge the customer $10.01 and pocket the difference.
The SEC calculated that Morgan Stanley failed to provide the best execution on trades accounting for 3.7% of the OTC orders it executed for customers of Morgan Stanley's Private Wealth Management unit, Morgan Stanley Dean Witter Reynolds and third-party brokers working through Morgan Stanley. .
To Morgan Stanley’s credit, the problem with was with an automated trading program, and not fraudulent, skimming Initech-type employees. And, also to the bank’s credit, the problem was discovered by a trader who was amazed that he was making so much money.
The Journal again:
A Morgan Stanley trader uncovered the programming bias when he made nearly $400,000 of profit in a single stock in a few minutes of volatile trading one day in December 2004, the SEC said.
Morgan Stanley Set To Reimburse Clients [Wall Street Journal]