Morgan Stanley 2014 Annual Report Download - page 23

Although the full impact of U.S. derivatives regulation on the Company remains unclear, the Company has
already, and will continue to, face increased costs and regulatory oversight due to the registration and regulatory
requirements indicated above. Complying with the Swaps rules also has required, and will in the future require,
the Company to change its Swaps businesses, and has required, and will in the future require, extensive systems
and personnel changes. Compliance with Swap-related regulatory capital requirements may require the Company
to devote more capital to its Swaps business.
The European Union (“E.U.”) has adopted and implemented certain rules relating to the OTC derivatives market
and these rules imposed regulatory reporting beginning in February 2014. The E.U. plans to impose central
clearing requirements on OTC derivatives beginning in 2015 and has started reviewing and adopting
determinations of equivalence of the regulatory regimes for central counterparties and trade repositories, and of
risk mitigation requirements. In April 2014, E.U. regulators also proposed margin requirements for uncleared
Swaps. In addition, other non-U.S. jurisdictions are in the process of adopting and implementing legislation
emanating from the G-20 commitments that will require, among other things, the central clearing of certain OTC
derivatives, mandatory reporting of derivatives and bilateral risk mitigation procedures for non-cleared trades. It
remains unclear at present how the non-U.S. and U.S. derivatives regulatory regimes will interact.
Credit Risk Retention.In October 2014, federal regulatory agencies issued final rules to implement the credit
risk retention requirements of Section 941 of the Dodd-Frank Act, which generally require securitizers of
different types of asset-backed securitizations, including transactions backed by residential mortgages,
commercial mortgages, and corporate, credit card and auto loans, to retain at least 5% of the credit risk of the
assets being securitized. Compliance with respect to new securitization transactions backed by residential
mortgages is required beginning December 24, 2015 and with respect to new securitization transactions backed
by other types of assets beginning December 24, 2016. The Company continues to evaluate the final rules and
assess their impact on its securitization activities.
Non-U.S. Regulation. The Company’s Institutional Securities businesses also are 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 the Company
maintains an office. Non-U.S. policy makers and regulators, including the European Commission and European
Supervisory Authorities, continue to propose and adopt numerous market reforms, including those that may
further impact the structure of banks, and formulate regulatory standards and measures that will be of relevance
and importance to the Company’s European operations. 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 Prudential Regulation
Authority (“PRA”), the Financial Conduct Authority (“FCA”) and several securities and futures exchanges in the
United Kingdom (“U.K.”), including the London Stock Exchange and ICE Futures Europe, regulate the
Company’s activities in the U.K.; the Bundesanstalt für Finanzdienstleistungsaufsicht (the Federal Financial
Supervisory Authority) and the Deutsche Börse AG regulate its activities in the Federal Republic of Germany;
Eidgenössische Finanzmarktaufsicht (the Financial Market Supervisory Authority) regulates its activities in
Switzerland; the Financial Services Agency, the Bank of Japan, the Japanese Securities Dealers Association and
several Japanese securities and futures exchanges, including the Tokyo Stock Exchange, the Osaka Securities
Exchange and the Tokyo International Financial Futures Exchange, regulate its activities in Japan; the Hong
Kong Securities and Futures Commission, the Hong Kong Monetary Authority and the Hong Kong Exchanges
and Clearing Limited regulate its operations in Hong Kong; and the Monetary Authority of Singapore and the
Singapore Exchange Limited regulate its business in Singapore.
Regulators in the U.K., E.U. and other major jurisdictions have also finalized or are in the process of proposing
or finalizing risk-based capital, leverage capital, liquidity, banking structural reforms and other regulatory
standards applicable to certain Morgan Stanley subsidiaries that operate in those jurisdictions. For example, the
Company’s primary broker-dealer in the U.K., MSIP, is subject to regulation and supervision by the PRA with
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