Morgan Stanley 2014 Annual Report Download - page 22

MS&Co. and MSSB LLC have affiliates that are registered as commodity trading advisors and/or commodity
pool operators, or are operating under certain exemptions from such registration pursuant to CFTC rules and
other guidance. Under CFTC and NFA rules, commodity trading advisors who manage accounts and commodity
pool operators that are registered with the NFA must distribute disclosure documents and maintain specified
records relating to their activities, and commodity trading advisors and commodity pool operators have certain
responsibilities with respect to each pool they advise or operate. 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.
The Company’s commodities activities 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 the Company’s commodities activities also are 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 the Company or locations to which the Company has sent wastes for disposal. See also
“—Financial Holding Company—Scope of Permitted Activities” above.
Derivatives Regulation. Through the Dodd-Frank Act, the Company faces a comprehensive U.S. regulatory
regime for its activities in certain OTC derivatives. The regulation of “swaps” and “security-based swaps”
(collectively, “Swaps”) in the U.S. is being, and will continue to be, effected and implemented through the
CFTC, SEC and other agency regulations. The CFTC has completed the majority of its regulations in this area,
most of which are in effect. The SEC has not yet adopted the majority of its Swaps regulations.
Subject to certain limited exceptions, the Dodd-Frank Act requires central clearing of certain types of Swaps,
public and regulatory reporting, and mandatory trading on regulated exchanges or execution facilities. Reporting
requirements for CFTC-regulated Swaps are now in effect and certain types of CFTC-regulated interest rate and
index credit default swaps are subject to mandatory central clearing. Certain Swaps are also required to be traded
on an exchange or execution facility.
The Dodd-Frank Act also requires the registration of “swap dealers” with the CFTC and “security-based swap
dealers” with the SEC (collectively, “Swaps Entities”). Certain of the Company’s subsidiaries have registered
with the CFTC as swap dealers and in the future additional subsidiaries may register with the CFTC. One or
more subsidiaries of the Company will in the future be required to register with the SEC as security-based swap
dealers.
Swaps Entities are or will be subject to a comprehensive regulatory regime with new obligations for the Swaps
activities for which they are registered, including new capital requirements, a new margin regime for uncleared
Swaps and a new segregation regime for collateral of counterparties to uncleared Swaps. Swaps Entities are
subject to additional duties, including, among others, internal and external business conduct and documentation
standards with respect to their Swaps counterparties and recordkeeping.
The specific parameters of some of these requirements for Swaps have been and continue to be developed
through the CFTC, SEC and bank regulator rulemakings. In particular, in September 2014, the CFTC and the
U.S. banking regulators re-proposed their rules on margin requirements for uncleared Swaps. The full impact on
the Company of the U.S. agencies’ margin and capital requirements for Swaps Entities will not be known with
certainty until the requirements are finalized. In December 2014, the CFTC re-opened the comment period on re-
proposed rules that, if finalized as proposed, would limit positions in 28 agricultural, energy and metals
commodities, including Swaps, futures and options that are economically equivalent to those commodity
contracts. Through this re-proposal, the CFTC is taking steps to institute position limits that were previously
finalized in November 2011 but were vacated by a federal court in September 2012.
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