Morgan Stanley 2009 Annual Report Download - page 18

coverage, MS&Co. has purchased additional protection for the benefit of its customers in the form of an annual
policy issued by certain underwriters and various insurance companies that provides protection for all clients up
to the remaining net equity securities balance in their accounts, subject to the firmwide cap of $1 billion.
Regulation of Certain Commodities Activities. The commodities activities in the Institutional Securities
business segment are subject to extensive and evolving energy, commodities, environmental, health and safety
and other governmental laws and regulations in the U.S. and abroad. Intensified scrutiny of certain energy
markets by U.S. federal, state and local authorities in the U.S. and abroad and by the public has resulted in
increased regulatory and legal enforcement and remedial proceedings involving energy companies, including
those engaged in power generation and liquid hydrocarbons trading.
Terminal facilities and other assets relating to Morgan Stanley’s commodities activities are also subject to
environmental laws both in the U.S. and abroad. In addition, pipeline, transport and terminal operations are
subject to state laws in connection with the cleanup of hazardous substances that may have been released at
properties currently or previously owned or operated by us or locations to which we have sent wastes for
disposal.
Additional Regulation of U.S. Entities. As registered futures commission merchants, MS&Co. and MSSB
LLC are subject to net capital requirements of, and their activities are regulated by, the Commodity Futures
Trading Commission (the “CFTC”) and various commodity futures exchanges. Morgan Stanley’s futures and
options-on-futures businesses are also regulated by the National Futures Association (the “NFA”), a registered
futures association, of which MS&Co. and certain of its affiliates are members. These regulatory requirements
differ for clearing and non-clearing firms, and they address obligations related to, among other things, the
registration of the futures commission merchant and certain of its associated persons, membership with the NFA,
the segregation of customer funds and the holding apart of a secured amount, the receipt of an acknowledgement
of certain written risk disclosure statements, the receipt of trading authorizations, the furnishing of daily
confirmations and monthly statements, recordkeeping and reporting obligations, the supervision of accounts, and
antifraud prohibitions. Among other things, the NFA has rules covering a wide variety of areas such as
advertising, telephone solicitations, risk disclosure, discretionary trading, disclosure of fees, minimum capital
requirements, reporting and proficiency testing. MS&Co. and MSSB LLC have affiliates that are registered as
commodity trading advisers (“CTAs”) and/or commodity pool operators (“CPOs”), or are operating under certain
exemptions from such registration pursuant to CFTC Rules and other guidance. Under CFTC and NFA Rules,
CTAs that manage accounts must distribute disclosure documents, and maintain specified records relating to
their activities and clients. Under CFTC and NFA rules, CPOs have certain responsibilities with respect to each
pool they operate. For each pool, a CPO must prepare and distribute a disclosure document; distribute periodic
account statements; prepare and distribute audited annual financial reports; and keep specified records
concerning the participants, transactions, and operations of each pool, as well as records regarding transactions of
the CPO and its principals. Violations of the rules of the CFTC, the NFA or the commodity exchanges could
result in remedial actions including fines, registration restrictions or terminations, trading prohibitions or
revocations of commodity exchange memberships.
Non-U.S. Regulation. Morgan Stanley’s businesses are also regulated extensively by non-U.S. regulators,
including governments, securities exchanges, commodity exchanges, self-regulatory organizations, central banks
and regulatory bodies, especially in those jurisdictions in which Morgan Stanley maintains an office. Certain
Morgan Stanley subsidiaries are regulated as broker-dealers under the laws of the jurisdictions in which they
operate. Subsidiaries engaged in banking and trust activities outside the U.S. are regulated by various
government agencies in the particular jurisdiction where they are chartered, incorporated and/or conduct their
business activity. For instance, the Financial Services Authority and several U.K. securities and futures
exchanges, including the London Stock Exchange and Euronext.liffe, regulate Morgan Stanley’s activities in the
U.K.; the Deutsche Börse AG and the Bundesanstalt für Finanzdienstleistungsaufsicht (the Federal Financial
Supervisory Authority) regulate its activities in the Federal Republic of Germany; Eidgenössische
Finanzmarktaufsicht regulates its activities in Switzerland; the Financial Services Agency, the Bank of Japan, the
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