Morgan Stanley 2015 Annual Report Download - page 13

exclusively by large depository institutions, including MSBNA, and FDIC deposit insurance assessments are calculated using
a methodology that generally results in a lower charge for banks that are mostly funded by deposits.
Institutional Securities and Wealth Management.
Broker-Dealer and Investment Adviser Regulation. The Company’s primary U.S. broker-dealer subsidiaries, Morgan
Stanley & Co. LLC (“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 various securities exchanges and clearing organizations.
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, risk
management controls in connection with market access, recordkeeping 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. Morgan Stanley’s broker-dealer subsidiaries are also members of the Securities Investor
Protection Corporation, which provides certain protections for customers of broker-dealers against losses in the event of the
insolvency of a broker-dealer.
MSSB LLC is also a registered investment adviser with the SEC. MSSB LLC’s relationship with its investment advisory
clients is subject to the fiduciary and other obligations imposed on investment advisors under the Investment Advisers Act of
1940, and the rules and regulations promulgated thereunder as well as various state securities laws. These laws and
regulations generally grant the SEC and other supervisory bodies broad administrative powers to address non-compliance,
including the power to restrict or limit MSSB LLC from carrying on its investment advisory and other asset management
activities. Other sanctions that may be imposed include the suspension of individual employees, limitations on engaging in
certain activities for specified periods of time or for specified types of clients, the revocation of registrations, other censures
and significant fines.
The Company is subject to various regulations that affect broker-dealer sales practices and customer relationships. For
example, under the Dodd-Frank Act, the SEC is authorized to adopt a fiduciary duty applicable to broker-dealers when
providing personalized investment advice about securities to retail customers, although the SEC has not yet acted on this
authority. As a separate matter, in April 2015, the U.S. Department of Labor issued a proposed rule under the Employee
Retirement Income Security Act of 1974 that, when finalized, would subject broker-dealers to a fiduciary duty and may limit
certain transactions and activities involving retirement accounts. These developments may impact the manner in which
affected businesses are conducted, decrease profitability and increase potential liabilities.
Margin lending by broker-dealers is regulated by the Federal Reserve’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, the Company’s broker-dealer subsidiaries’ margin policies are more stringent than these rules.
As registered U.S. broker-dealers, certain subsidiaries of the Company are subject to the SEC’s net capital rule and the net
capital requirements of various exchanges, other regulatory authorities and self-regulatory organizations. 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 liquid assets be maintained by the subsidiary. See also “—Financial Holding Company—Consolidated Supervision”
and “—Financial Holding Company—Liquidity 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 requirements may limit the Company’s operations requiring the intensive use of capital.
Such requirements restrict the Company’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 requirements, or a
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