Morgan Stanley to Gain From MiFID's Trading Shakeup, Pruzan Says

  • Firm’s status as top equities trader gives it an edge: CFO
  • New European financial rules are set to take effect next year

The world’s biggest investment banks may emerge as winners from the shifts created by the European Union’s MiFID II market overhaul as asset managers trim the ranks of trading counterparties they use, Morgan Stanley Chief Financial Officer Jonathan Pruzan said.

Morgan Stanley’s status as the biggest equities trading firm gives it an advantage as clients assess how they divvy up their business, Pruzan said Wednesday in a telephone interview. Some asset managers have delayed making decisions, but are now doing so with the rules set to take effect in less than six months, he said.

The regulations force firms to unbundle trading commissions from investment research, which had typically been thrown in as a free service, and document trades more thoroughly. In a world where the cost of research becomes transparent, asset managers may opt to funnel budgets to fewer investment banks so they can maintain the high levels of service firms get for doing a lot of business, Pruzan said.

“If an asset management firm that normally does trades through 10 firms decides they only have a certain number of dollars to allocate to research and they therefore want to pay their top five guys, presumably we’re in that five, because we’re No. 1,” he said. “And therefore there’s more dollars coming to us.”

Read more: How do you price research?

Banks and their clients have been hashing out the costs for research, with pricing dependent on different tiers of service. Prices proposed to clients so far include as much as 120,000 euros ($138,000) a year for premium packages from Credit Agricole SA and Nomura Holdings Inc. The new regulation aims to tackle conflicts of interest by requiring asset managers to separate the trading commissions they pay from investment-research fees.

“We’re prepared and having those dialogues with those clients as we speak,” Pruzan said. “We have clients who are thinking about doing this for their entire global network, and we have clients who are ringfencing their European businesses and only doing it in Europe.”

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