Morgan Stanley 2015 Annual Report Download - page 23

associated with our Institutional Securities business segment, we may be required to provide additional collateral to, or
immediately settle any outstanding liability balance with, certain counterparties in the event of a credit ratings downgrade.
Termination of our trading and other agreements could cause us to sustain losses and impair our liquidity by requiring us to
find other sources of financing or to make significant cash payments or securities movements. The additional collateral or
termination payments which may occur in the event of a future credit rating downgrade vary by contract and can be based on
ratings by either or both of Moody’s Investor Services and Standard & Poor’s Rating Services. See also “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit
Ratings—Incremental Collateral or Terminating Payments upon Potential Future Rating Downgrade” in Part II, Item 7.
We are a holding company and depend on payments from our subsidiaries.
The parent holding company depends on dividends, distributions and other payments from its subsidiaries to fund dividend
payments and to fund all payments on its obligations, including debt obligations. Regulatory, tax restrictions or elections and
other legal restrictions may limit our ability to transfer funds freely, either to or from our subsidiaries. In particular, many of
our subsidiaries, including our broker-dealer subsidiaries, are subject to laws, regulations and self-regulatory organization
rules that authorize regulatory bodies to block or reduce the flow of funds to the parent holding company, or that prohibit
such transfers altogether in certain circumstances, including steps to “ring fence” entities by regulators outside of the U.S. to
protect clients and creditors of such entities in the event of financial difficulties involving such entities. These laws,
regulations and rules may hinder our ability to access funds that we may need to make payments on our obligations.
Furthermore, as a bank holding company, we may become subject to a prohibition or to limitations on our ability to pay
dividends or repurchase our common stock. The OCC, the Federal Reserve and the FDIC have the authority, and under
certain circumstances the duty, to prohibit or to limit the payment of dividends by the banking organizations they supervise,
including us and our U.S. Bank Subsidiaries.
Our liquidity and financial condition have in the past been, and in the future could be, adversely affected by U.S. and
international markets and economic conditions.
Our ability to raise funding in the long-term or short-term debt capital markets or the equity markets, or to access secured
lending markets, has in the past been, and could in the future be, adversely affected by conditions in the U.S. and
international markets and economies. Global market and economic conditions have been particularly disrupted and volatile in
the last several years and may be in the future. In particular, our cost and availability of funding in the past have been, and
may in the future be, adversely affected by illiquid credit markets and wider credit spreads. Significant turbulence in the
U.S., the E.U. and other international markets and economies could adversely affect our liquidity and financial condition and
the willingness of certain counterparties and customers to do business with us.
Legal, Regulatory and Compliance Risk.
Legal, regulatory and compliance risk includes the risk of legal or regulatory sanctions, material financial loss including
fines, penalties, judgments, damages and/or settlements, or loss to reputation we may suffer as a result of our failure to
comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our
business activities. This risk also includes contractual and commercial risk, such as the risk that a counterparty’s performance
obligations will be unenforceable. It also includes compliance with AML and terrorist financing rules and regulations. In
today’s environment of rapid and possibly transformational regulatory change, we also view regulatory change as a
component of legal, regulatory and compliance risk. For more information on how we monitor and manage legal, regulatory
and compliance risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Legal and
Compliance Risk” in Part II, Item 7A.
The financial services industry is subject to extensive regulation, which is undergoing major changes that will impact our
business.
Like other major financial services firms, we are subject to extensive regulation by U.S. federal and state regulatory agencies
and securities exchanges and by regulators and exchanges in each of the major markets where we conduct our business.
These laws and regulations significantly affect the way we do business and can restrict the scope of our existing businesses
and limit our ability to expand our product offerings and pursue certain investments.
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