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It must have been a rude surprise for those manning Morgan Stanley’s block-trading desk (and, of course, their customers) to learn that their conversations were being monitored, retrospectively, by the Justice Department and Securities and Exchange Commission. (Although exactly when that surprise came is open to interpretation.) Seems the Feds had gotten it into their heads that block-trading, as much a cornerstone of what investment banks do as anything, is just a big old square fig leaf for a whole lot of insider-trading.
Still, irritating as that was, it’s not half as irritating as having a lawyer looking scoldingly down his nose from across the desk at you as you gingerly attempt to gauge a client’s interest in a big chunk of stock that maybe, just maybe might come up for sale without winding up like your old boss or your old desk mate.
The Wall Street bank has embedded one of its lawyers to sit on its US equity syndicate desk to supervise bankers and answer their legal questions, according to people briefed on the arrangement…. The people briefed on the arrangement said the decision to place the lawyer on the desk reflected a more conservative approach by Morgan Stanley in engaging with buyers of block trades, which are typically hedge funds.
Wherever did the House of Gorman get such an invasive idea? Well, suffice it to say it doesn’t make this whole block-trading probe seem less serious.
In the aftermath of the 2008 financial crisis, Morgan Stanley adopted the arrangement on its structured products desk, which was responsible for trading the pools of mortgage-backed securities that became notorious during the subprime housing meltdown.
Morgan Stanley orders internal lawyer to supervise block trading desk [FT]
Morgan Stanley Banker Put on Leave as Block-Trade Probe Heats Up [Bloomberg]
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