Morgan Stanley strengthens supervision of block exchanges

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This is an audio transcription of the FT press briefing podcast episode: Morgan Stanley strengthens supervision of block exchanges

Marc Filipino
Hello from the Financial Times. Today is Tuesday, August 30, and it’s your FT News Briefing.

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Morgan Stanley appears to be concerned about a federal investigation into its stalled trade. Airlines, for their part, fear the winter cold. Additionally, British Foreign Secretary Liz Truss appears to be the next Prime Minister. She’s already ruffling some feathers in Washington. I’m Marc Filippino, and here’s the news you need to start your day.

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Morgan Stanley has been under federal investigation into its block trading, which is when banks are hired to sell a large number of shares of a publicly traded company. And now the FT has learned that Morgan Stanley has placed an in-house lawyer in its block trading unit to bolster oversight. The FT’s US banking editor Josh Franklin said the decision shows how seriously Morgan Stanley takes this investigation.

Joshua Franklin
So what we understand is that the SEC, the Securities and Exchange Commission, has been studying this for several years now. But things really took off after Bill Hwang’s family office collapsed last year. I’m sure FT listeners will remember Archegos Capital Management and the great story of the last year. And there were a number of block exchanges that kind of precipitated the collapse of Archegos, and the exchanges around that increased the scrutiny of block exchanges. And that caused the Department of Justice to look into this area as well, and now it seems to have Morgan Stanley in its sights.

Marc Filipino
So, Josh, how big are these blocks of shares being traded, and who are regulators trying to protect with this investigation?

Joshua Franklin
So block trades are very large chunks of shares. So you could be, you know, hundreds of millions of dollars worth of shares of a company coming to market in a single block of shares that can be split among a group of different investors. Often it is hedge fund investors who are the buyers here. And it really is a big deal. Morgan Stanley is the number one bank in block trading on Wall Street. So they’re the kind of bank with the biggest target on their back. And the people that the SEC and the DOJ can try to protect with these kinds of investigations are ordinary investors who may feel that the market is being manipulated by people who have, who are able to trade on information prerequisites, material, non-public information and people who feel unfairly disadvantaged compared to some investors who may know about some of these trades.

Marc Filipino
So now Morgan Stanley sends one of its own attorneys to oversee its block trading unit. What would this lawyer do?

Joshua Franklin
So I think what the in-house counsel is there to do is really provide some legal oversight in an area of ​​finance that can really operate in a bit of a gray area. But he’s also there to answer any legal questions bankers may have. If they feel like they’re entering a gray area, they can get some pretty clear black and white guidance. From everything I hear, that wasn’t a useless thing to have. And we also understand that this is part of a broader approach by this team to try to be more careful about how they engage with the market around block trades. So this is really just one of the more visible ways that Morgan Stanley is trying to take a more cautious approach while these very serious investigations are ongoing.

Marc Filipino
Josh Franklin is the FT’s US banking editor.

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Airline executives may have dreamed of full flights at the height of the pandemic, but when Covid restrictions eased, this summer’s flood of passengers created logistical nightmares. And now, a slowdown in the global economy could threaten the recovery of the airline industry. Airlines have already been reeling from rising fuel prices and staff shortages. Now they must fear that high inflation and soaring energy bills will eat away at disposable incomes and lead to a drop in passenger bookings.

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In the UK next week, members of the ruling Conservative Party will vote for a new leader and that leader will be the country’s next prime minister. The favorite is Liz Truss. She is currently the country’s foreign minister. The FT’s Felicia Schwartz looked at how Truss would handle relations with Washington. Hello, Felicia.

Felicia Schwartz
Hi how are you?

Marc Filipino
I’m doing well. Truss being Minister of Foreign Affairs, she has already worked with the United States. So what kind of relationship should we expect if she is elected prime minister?

Felicia Schwartz
I think he’s someone who has built relationships at this point with people in the Biden administration. And overall, you know, it’s very difficult to have a bad US-UK relationship. Disagreements or quarrels are sort of marginal, but he’s someone with a very brutal style. People have described her as very black and white, you know. There are not always many nuances in her, in her way of seeing the world and the foreign policy positions she supports.

Marc Filipino
And the two sides worked closely together, especially in the response to Ukraine, although, as you mentioned in your article, Truss irritated a few US officials when she raised the idea of ​​a plan. massive reconstruction for Ukraine.

Felicia Schwartz
It raised a few eyebrows in the Biden administration because they were like, you know, who is she to speak harshly about this when, you know, in fact, the United States has given billions more in lethal and, you know, economic aid to Ukraine? It’s easy to come out and say, you know, we have to do X, Y and Z. But, you know, they felt like it was a tough conversation while behind the scenes, the United States worked very hard to kind of funnel tons of money and aid to Ukraine without always getting the credit.

Marc Filipino
So how much of this tough talk from Truss is just for show, a kind of demonstration for his conservative base in the UK?

Felicia Schwartz
Basically, I think one is a very open-ended question, isn’t it, how married is she to all this? Like, she has a lot of reasons to, you know, want to have good ties with the Biden administration, to want to avoid conflict, to want to work together. But at the same time, like, his support among conservatives lies in the far-right genre of the party. So she made a lot of promises to these people and she needs them to stay in power. But I don’t think there are huge expectations that British foreign policy will be radically different under Truss and perhaps stylistically a bit different. slightly different rhetoric. But there were other times when, you know, the leaders had tensions, Obama and his British counterparts, like rebuffs over gifts and this, that and the other, which, you know, we all love read, but not necessarily, ultimately alter each side’s ability to work together.

Marc Filipino
Felicia Schwartz is the FT’s foreign affairs and defense correspondent in the United States. Thanks, Felicia.

Felicia Schwartz
Thank you for.

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Marc Filipino
Before we go, we have the scoop on a transatlantic sports deal with stars. The FT has learned that the New York Yankees are considering taking a minority stake in AC Milan. It is the champion football club of Italy. The American baseball franchise, the Yankees, has teamed up with a Los Angeles investment fund and American private equity group Redbird, which is closing in on the €1.2 billion acquisition. They buy it from its current owner, the American hedge fund Elliott Management. And the deal shows how excited American investors are about investing in the world’s favorite sport, even if it’s not that popular back home. And there’s another American sports celebrity involved, basketball star and Los Angeles Laker LeBron James is also believed to be a passive investor in the AC Milan deal.

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You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

This transcript was generated automatically. If by any chance there is an error, please send the details for a correction to: [email protected]. We will do our best to make the change as soon as possible.

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