Morgan Stanley 2009 Annual Report Download - page 26

Our commodities activities subject us to extensive regulation, potential catastrophic events and environmental
risks and regulation that may expose us to significant costs and liabilities.
In connection with the commodities activities in our Institutional Securities business segment, we engage in the
production, storage, transportation, marketing and trading of several commodities, including metals (base and
precious), agricultural products, crude oil, oil products, natural gas, electric power, emission credits, coal, freight,
liquefied natural gas and related products and indices. In addition, we own electricity generating facilities in the
U.S. and Europe; we own TransMontaigne Inc. and its subsidiaries, a group of companies operating in the refined
petroleum products marketing and distribution business; and we have an interest in Heidmar Holdings LLC,
which owns a group of companies that provide international marine transportation and U.S. marine logistics
services. As a result of these activities, we are subject to extensive and evolving energy, commodities,
environmental, health and safety and other governmental laws and regulations. For example, liability may be
incurred without regard to fault under certain environmental laws and regulations for the remediation of
contaminated areas. Further, through these activities we are exposed to regulatory, physical and certain indirect
risks associated with climate change. Our commodities business also exposes us to the risk of unforeseen and
catastrophic events, including natural disasters, leaks, spills, explosions, release of toxic substances, fires,
accidents on land and at sea, wars, and terrorist attacks that could result in personal injuries, loss of life, property
damage, and suspension of operations.
Although we have attempted to mitigate our pollution and other environmental risks by, among other measures,
adopting appropriate policies and procedures for power plant operations, monitoring the quality of petroleum
storage facilities and transport vessels and implementing emergency response programs, these actions may not
prove adequate to address every contingency. In addition, insurance covering some of these risks may not be
available, and the proceeds, if any, from insurance recovery may not be adequate to cover liabilities with respect
to particular incidents. As a result, our financial condition and results of operations may be adversely affected by
these events.
We also expect the other laws and regulations affecting our commodities business to increase in both scope and
complexity. During the past several years, intensified scrutiny of certain energy markets by federal, state and
local authorities in the U.S. and abroad and the public has resulted in increased regulatory and legal enforcement,
litigation and remedial proceedings involving companies engaged in the activities in which we are engaged. For
example, the U.S. and the EU have increased their focus on the energy markets which has resulted in increased
regulation of companies participating in the energy markets, including those engaged in power generation and
liquid hydrocarbons trading. Regulatory reforms currently underway are likely to include significant regulation
of OTC derivatives markets, which could include mandated exchange trading and clearing, position limits,
margin, capital and registration requirements. We may incur substantial costs or loss of revenue in complying
with current or future laws and regulations and our overall businesses and reputation may be adversely affected
by the current legal environment. In addition, failure to comply with these laws and regulations may result in
substantial civil and criminal fines and penalties.
A failure to deal with conflicts of interest appropriately could adversely affect our businesses.
As a global financial services firm that provides products and services to a large and diversified group of clients,
including corporations, governments, financial institutions and individuals, we face potential conflicts of interest
in the normal course of business. For example, potential conflicts can occur when there is a divergence of
interests between Morgan Stanley and a client, among clients, or between an employee on the one hand and the
Firm or a client on the other. We have policies, procedures and controls that are designed to address potential
conflicts of interest. However, identifying and managing potential conflicts of interest can be complex and
challenging, and can become the focus of media and regulatory scrutiny. Indeed, actions that merely appear to
create a conflict can put our reputation at risk even if the likelihood of an actual conflict has been mitigated. It is
possible that potential conflicts could give rise to litigation or enforcement actions, which may lead to our clients
being less willing to enter into transactions in which a conflict may occur and could adversely affect our
businesses.
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