Morgan Stanley 2009 Annual Report Download - page 17

Research.
Both U.S. and non-U.S. regulators continue to focus on research conflicts of interest. Research-related
regulations have been implemented in many jurisdictions. New and revised requirements resulting from these
regulations and the global research settlement with U.S. federal and state regulators (to which Morgan Stanley is
a party) have necessitated the development or enhancement of corresponding policies and procedures.
Institutional Securities and Global Wealth Management Group.
Broker-Dealer Regulation. Morgan Stanley’s primary U.S. broker-dealer subsidiaries, MS&Co. and MSSB
LLC, are registered broker-dealers with the SEC and in all 50 states, the District of Columbia, Puerto Rico and
the U.S. Virgin Islands, and are members of various self-regulatory organizations, including the Financial
Industry Regulatory Authority, Inc. (“FINRA”) and securities exchanges, including the NYSE. In addition,
MS&Co. and MSSB LLC are registered investment advisers with the SEC. Broker-dealers are subject to laws
and regulations covering all aspects of the securities business, including sales and trading practices, securities
offerings, publication of research reports, use of customers’ funds and securities, capital structure, record-
keeping and retention and the conduct of their directors, officers, representatives and other associated persons.
Broker-dealers are also regulated by securities administrators in those states where they do business. Violations
of the laws and regulations governing a broker-dealer’s actions could result in censures, fines, the issuance of
cease-and-desist orders, revocation of licenses or registrations, the suspension or expulsion from the securities
industry of such broker-dealer or its officers or employees, or other similar consequences by both federal and
state securities administrators.
Margin lending by broker-dealers is regulated by the Fed’s restrictions on lending in connection with customer
and proprietary purchases and short sales of securities, as well as securities borrowing and lending activities.
Broker-dealers are also subject to maintenance and other margin requirements imposed under FINRA and other
self-regulatory organization rules. In many cases, Morgan Stanley’s broker-dealer subsidiaries’ margin policies
are more stringent than these rules.
As registered U.S. broker-dealers, certain subsidiaries of Morgan Stanley are subject to the SEC’s net capital rule
and the net capital requirements of various exchanges and other regulatory authorities. Many non-U.S. regulatory
authorities and exchanges also have rules relating to capital and, in some case, liquidity requirements that apply
to Morgan Stanley’s non-U.S. broker-dealer subsidiaries. These rules are generally designed to measure general
financial integrity and/or liquidity and require that at least a minimum amount of net and/or more liquid assets be
maintained by the subsidiary. See also “Consolidated Supervision” and “Capital Standards” above. Rules of
FINRA and other self-regulatory organizations also impose limitations and requirements on the transfer of
member organizations’ assets.
Compliance with regulatory capital liquidity requirements may limit Morgan Stanley’s operations requiring the
intensive use of capital. Such requirements restrict Morgan Stanley’s ability to withdraw capital from its broker-
dealer subsidiaries, which in turn may limit its ability to pay dividends, repay debt or redeem or purchase shares
of its own outstanding stock. Any change in such rules or the imposition of new rules affecting the scope,
coverage, calculation or amount of capital liquidity requirements, or a significant operating loss or any unusually
large charge against capital, could adversely affect Morgan Stanley’s ability to pay dividends or to expand or
maintain present business levels. In addition, such rules may require Morgan Stanley to make substantial capital
liquidity infusions into one or more of its broker-dealer subsidiaries in order for such subsidiaries to comply with
such rules.
MS&Co. and MSSB LLC are members of the Securities Investor Protection Corporation (“SIPC”), which
provides protection for customers of broker-dealers against losses in the event of the liquidation of a broker-
dealer. SIPC protects customers’ securities accounts held by a member broker-dealer up to $500,000 for each
eligible customer, subject to a limitation of $100,000 for claims for cash balances. To supplement this SIPC
13