Morgan Stanley 2015 Annual Report Download - page 27

Management of market, credit, liquidity, operational, legal, regulatory and compliance risks requires, among other things,
policies and procedures to record properly and verify a large number of transactions and events, and these policies and
procedures may not be fully effective. Our trading risk management strategies and techniques also seek to balance our ability
to profit from trading positions with our exposure to potential losses. While we employ a broad and diversified set of risk
monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot
anticipate every economic and financial outcome or the timing of such outcomes. For example, to the extent that our trading
or investing activities involve less liquid trading markets or are otherwise subject to restrictions on sale or hedging, we may
not be able to reduce our positions and therefore reduce our risk associated with such positions. We may, therefore, incur
losses in the course of our trading or investing activities. For more information on how we monitor and manage market and
certain other risks and related strategies, models and processes, see “Quantitative and Qualitative Disclosures about Market
Risk—Risk Management—Market Risk” in Part II, Item 7A.
Competitive Environment.
We face strong competition from other financial services firms, which could lead to pricing pressures that could
materially adversely affect our revenue and profitability.
The financial services industry and all aspects of our businesses are intensely competitive, and we expect them to remain so.
We compete with commercial banks, brokerage firms, insurance companies, electronic trading and clearing platforms,
financial data repositories, sponsors of mutual funds, hedge funds, energy companies and other companies offering financial
or ancillary services in the U.S., globally and through the internet. We compete on the basis of several factors, including
transaction execution, capital or access to capital, products and services, innovation, technology, reputation, risk appetite and
price. Over time, certain sectors of the financial services industry have become more concentrated, as institutions involved in
a broad range of financial services have left businesses, been acquired by or merged into other firms or have declared
bankruptcy. Such changes could result in our remaining competitors gaining greater capital and other resources, such as the
ability to offer a broader range of products and services and geographic diversity, or new competitors may emerge. We have
experienced and may continue to experience pricing pressures as a result of these factors and as some of our competitors seek
to obtain market share by reducing prices. In addition, certain of our competitors may be subject to different, and in some
cases, less stringent, legal and regulatory regimes, than we are, thereby putting us at a competitive disadvantage. For more
information regarding the competitive environment in which we operate, see “Business—Competition” and “Business—
Supervision and Regulation” in Part I, Item 1.
Automated trading markets may adversely affect our business and may increase competition.
We have experienced intense price competition in some of our businesses in recent years. In particular, the ability to execute
securities, derivatives and other financial instrument trades electronically on exchanges, swap execution facilities, and other
automated trading platforms has increased the pressure on bid-offer spreads, commissions, markups or comparable fees. The
trend toward direct access to automated, electronic markets will likely continue and will likely increase as additional markets
move to more automated trading platforms. We have experienced and it is likely that we will continue to experience
competitive pressures in these and other areas in the future as some of our competitors may seek to obtain market share by
reducing bid-offer spreads, commissions, markups or comparable fees.
Our ability to retain and attract qualified employees is critical to the success of our business and the failure to do so may
materially adversely affect our performance.
Our people are our most important resource and competition for qualified employees is intense. If we are unable to continue
to attract and retain highly qualified employees, or do so at rates or in forms necessary to maintain our competitive position,
or if compensation costs required to attract and retain employees become more expensive, our performance, including our
competitive position, could be materially adversely affected. The financial industry has experienced and may continue to
experience more stringent regulation of employee compensation, including limitations relating to incentive-based
compensation, clawback requirements and special taxation, which could have an adverse effect on our ability to hire or retain
the most qualified employees.
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