Regulator Finra requires banks to report their short positions, to provide investors with transparency over activity in the marketplace.
But Morgan Stanley failed to do this, and failed to implement a system designed to detect any problems with the reporting.
“It is imperative that this information be timely and accurately reported,” said regulator Thomas Gira.
“A fundamental requirement for compliance with the short sale rule is that firms properly track their short positions.”
Morgan Stanley accepted the settlement, but did not admit or deny the charges.