Morgan Stanley to pay $4M for violating SEC market rule over rogue Apple trades

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Morgan Stanley has agreed to pay a $4 million penalty for violating the market access rule, the Securities and Exchange Commission said on Wednesday.

The regulatory agency said in a release that the financial institution "failed to uphold credit limits for a customer firm with a rogue trader who engaged in fraudulent trading of Apple stock."

"Morgan Stanley has updated its written procedures to address the issue identified in the SEC's Order and is pleased to have this matter behind it," the firm said in an emailed statement to CNBC.

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The market access rule requires broker-dealers to institute adequate risk controls for customers with access to the markets. Without sufficient controls on one account, a rogue trader was able to exceed his pre-set limit and order $525 million worth of Apple stock on October 25, 2012, an SEC investigation found.

An employee of Rochdale Securities, the trader had intentionally enlarged an actual customer order of Apple stock from 1,625 shares to 1,625,000 shares with the idea of profiting personally from the extra shares if the stock price increased or claim an order error if the stock price decreased, the SEC said.

Apple shares fell that day and the trader was unable to uphold the false claim of an error order, leaving Rochdale with a $5.3 million loss that ultimately caused its demise, the release said.

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The trader, David Miller, was sentenced to 30 months of prison last November, Reuters said.

Shares of Morgan Stanley were down about half a percent in late morning trade.