Morgan Stanley in talks to resolve block trading probes
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Morgan Stanley is in talks with US authorities about settling federal investigations into its block trading business, the Wall Street investment bank disclosed on Tuesday.
The investigations by the Securities and Exchange Commission and the US attorney’s office in Manhattan into the handling of block trades — a way to sell bulk volumes of stock — by Morgan Stanley’s trading desk are among the most significant legal probes the bank has faced in recent years.
In its quarterly 10-Q regulatory filing on Tuesday, Morgan Stanley said it was “engaged in discussions regarding potential resolution of the investigations” by the US attorney’s office for the Southern District of New York and the SEC into its block trading business.
The bank cautioned that there was no assurance that a resolution would be reached.
The investigations came to light in early 2022 after Morgan Stanley placed one of its top executives on its US equity syndicate desk on leave.
Block trades are bulk sales of shares executed by an investment bank, normally for a client, which tend to be big enough to move markets. For years, Morgan Stanley has earned more fees from block trades than its Wall Street peers.
Big banks handling block trades will often reach out to investors such as hedge funds to gauge interest in potential share sales. The opaque practice has long attracted scrutiny due to certain suspect share price movements before some block trades come to market.
US authorities are investigating whether investors obtained advance warning of any trades. The SEC has also sought information from other banks pertaining to their communication with a wide range of buyers, including hedge funds.
Morgan Stanley had previously ordered an internal lawyer to shadow its US equity syndicate desk, the Financial Times has reported, underscoring the gravity of the probe and the steps the lender is taking to beef up supervision.
In addition to the US government investigations, Morgan Stanley has also warned it faces potential civil liability from investor lawsuits over allegations the bank caused share prices to fall before executing block trades.