Orders and Exemptions

MORGAN STANLEY & CO. LLC

WHEREAS:

(A)         Morgan Stanley & Co. LLC (the “Applicant”) has applied to The Manitoba Securities Commission (the “Commission”) for an order, pursuant to subsection 66(1) of The Commodity Futures Act (Manitoba) (the “CFA”), granting relief from:

(1)       the requirement in subsection 24(1) of the CFA for the Applicant to be registered as a dealer under the CFA (the “CFA dealer registration requirement”); and

(2)       the contract trading restrictions in section 40 of the CFA (the “CFA contract trading restrictions”), respectively,

in connection with trades (“Futures Trades”) in commodity futures contracts and options on commodity futures contracts (collectively, “Futures Contracts”) that trade on certain exchanges located outside of Canada (“Exchange-Traded Futures”) with or for its own account as principal, and as agent for residents of Manitoba (“Permitted Clients”) that fall within the category of investors defined as “permitted clients” in section 1.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”) (the “CFA International Dealer Relief”);

(B)         The Applicant has represented to the Commission that:

(1)       The Applicant is a limited liability company formed under the laws of the State of Delaware in the United States of America.  The Applicant’s head office is located in New York, New York, United States of America;

(2)       the Applicant is currently a wholly-owned direct subsidiary of Morgan Stanley (“MS”).  MS is a publicly-traded Delaware corporation with its shares listed on the New York Stock Exchange (the “NYSE”) under the trading symbol ‘MS’ and a financial holding company subject to the regulation and oversight of the Board of Governors of the Federal Reserve System;

(3)       the Applicant is registered with the Federal Reserve Bank of New York as a primary dealer in United States (“U.S.”) government securities.  The Applicant is a market maker for U.S. agency securities and acts as a broker for customers buying and selling equity and/or debt securities, and as a broker for futures and options on futures contracts.  The Applicant’s clients include financial institutions, institutional money managers, corporations, mutual funds, pension funds, and other institutional investors;

(4)       the Applicant is registered as a broker-dealer with the U.S. Securities and Exchange Commission and a futures commission merchant with the U.S. Commodity Futures Trading Commission (the “CFTC”), and is a member of the U.S. Financial Industry Regulatory Authority (“FINRA”) and the U.S. National Futures Association (“NFA”);

(5)       the Applicant is a member of major securities exchanges, including the NYSE.  The Applicant is also a foreign approved participant of the Montréal Exchange, a clearing member of the Chicago Mercantile Exchange (including the Chicago Board of Trade, and the New York Mercantile Exchange), the Options Clearing Corporation, ICE Clear Europe and ICE Clear U.S. (as well as a member of ICE Futures Europe and ICE Futures U.S.), and trades through affiliated or unaffiliated member firms on all other exchanges, including exchanges in Mexico, the United Kingdom, France, Italy, Greece, Spain, Germany, Austria, Japan, Korea, Singapore, Hong Kong, Taiwan, and Australia;

(6)       the Applicant is not registered in any capacity under the CFA or The Securities Act (Manitoba) (the “MSA”);

(7)       the Applicant is not a reporting issuer in any Canadian jurisdiction;

(8)       the Applicant is not currently in default of securities or commodity futures legislation except for a brief period where the Applicant unintentionally and unknowingly contravened the CFA dealer registration requirement by trading in Exchange-Traded Futures with and for a pre-existing institutional client in Manitoba.  Promptly upon discovering this regulatory gap in August 2008, the Applicant remedied this default by advising the client that it was unable to provide futures brokerage and clearing services any longer and closed the client’s futures accounts;

(9)       the Applicant currently relies on the registration exemption available in Section 8.18 of NI 31-103 (the “International Dealer Exemption”) for the purposes of trading in “securities” with “permitted clients” resident in all of the provinces and territories of Canada;

(10)    pursuant to its registrations and memberships, the Applicant is authorized to handle customer orders and receive and hold customer margin deposits, and otherwise act as a futures broker, in the U.S.  Rules of the CFTC and the NFA require the Applicant to maintain adequate capital levels, make and keep specified types of records relating to customer accounts and transactions, and comply with other forms of customer protection rules.  In order to protect customers in the event of the insolvency or financial instability of the Applicant, the Applicant is required to ensure that customer securities and monies are separately accounted for and segregated from the securities and monies of the Applicant, and custodied exclusively with such banks, trust companies, clearing organizations, or other registered/licensed futures brokers and intermediaries as may be approved for such purposes under the U.S. Commodity Exchange Act and the rules promulgated by the CFTC thereunder (the “MS&Co. Approved Depositories”).  The Applicant is also required to obtain acknowledgements from any MS&Co. Approved Depository holding customer funds or securities that such funds and securities are to be separately held on behalf of such customers, with no right of set-off against the Applicant’s obligations or debts;

(11)    the Applicant proposes to:

(a)            offer certain of its Permitted Clients the ability to trade, through the Applicant, Exchange-Traded Futures that trade on exchanges based outside of Canada (the “Recognized Exchanges”), unless such trades are routed through an agent that is a dealer registered in Manitoba under the CFA as a futures commission merchant; and

(b)            provide execution, clearing, and settlement services with or for         Permitted Clients with respect to Exchange-Traded Futures that are primarily traded on one or more Recognized Exchanges;

(12)    the Applicant will not provide advice regarding Exchange-Traded Futures except to the extent such advice is solely incidental to the Applicant trading such Exchange-Traded Futures on an agency basis with or for Permitted Clients;

(13)    the Applicant will solicit business in Manitoba only from persons that qualify as Permitted Clients;

(14)    the Exchange-Traded Futures to be traded by Permitted Clients will include, but will not be limited to, Futures Contracts for equity index, interest rate, foreign exchange, energy, metals, agricultural, and other commodity products;

(15)    Permitted Clients will be able to execute trades in Exchange-Traded Futures through the Applicant by contacting the Applicant’s voice brokerage execution desk or accessing global electronic trading operations.  Permitted Clients may also be able to self-execute trades in Exchange-Traded Futures electronically via an independent service vendor and/or other electronic trading routing services; 

(16)    the Applicant may execute a Permitted Client’s order, by either voice or electronic means, on the relevant Recognized Exchange in accordance with the rules and customary practices of the exchange, or engage another broker/dealer (which may be an affiliate of the Applicant) to assist in the execution of such orders.  The Applicant will remain responsible for the execution of each such order.  The Applicant may perform both execution and clearing functions for Exchange-Traded Futures or may direct that a trade executed by the Applicant be cleared through a carrying broker/dealer (which may be an affiliate of the Applicant) if the Applicant is not a member of the Recognized Exchange or clearing house on which the trade is executed and cleared.  Alternatively, the Permitted Client will be able to direct that trades executed by the Applicant be cleared through clearing brokers/dealers that are not affiliated with the Applicant (each, a “Non-MS Clearing Broker”).  In addition, the Applicant may, from time to time, act as a clearing broker/dealer under give-up arrangements entered into with futures brokers/dealers that will execute trades in Exchange-Traded Futures for the Applicant’s Permitted Client on a Recognized Exchange;

(17)    if the Applicant performs only the execution of a Permitted Client’s order for Exchange-Traded Futures and “gives-up” the transaction for clearance to a Non- MS Clearing Broker, such clearing broker/dealer will also be required to comply with the rules of the exchanges of which it is a member and any relevant regulatory requirements, including requirements under the CFA as applicable.  Each such Non-MS Clearing Broker will represent to the Applicant in a give-up agreement that it will perform its obligations in accordance with applicable laws, governmental, regulatory, self-regulatory, exchange, and clearing house rules, and the customs and usages of the exchange and clearing house on which the Permitted Client’s order for Exchange-Traded Futures will be executed and cleared.  The Applicant will not enter into a give-up agreement with any Non-MS Clearing Broker located in the United States unless such clearing broker is registered with the CFTC and/or SEC, as applicable;

(18)    as is customary for all trading in Exchange-Traded Futures, a clearing corporation appointed by the exchange, or clearing division of the exchange, is substituted as a universal counterparty on all trades in Exchange-Traded Futures and Permitted Client orders will be submitted to the exchange in the name of the Non-MS Clearing Broker or the Applicant or, on exchanges where the Applicant is not a member, in the name of another carrying broker/dealer.  The Permitted Client will be responsible to the Applicant for payment of daily mark-to-market variation margin and/or proper margin to carry open positions, and the Applicant, the carrying broker/dealer, or the Non-MS Clearing Broker will be, in turn, responsible to the clearing corporation/division for payment;

(19)    Permitted Clients that direct the Applicant to give up transactions in Exchange-Traded Futures for clearance and settlement by Non-MS Clearing Brokers will execute the give-up agreements described above.  Permitted Clients will pay commissions for trades in Exchange-Traded Futures to the Applicant or the Non-MS Clearing Broker, or such commissions may be shared by the Applicant with the Non-MS Clearing Broker;

(20)    as a futures commission merchant subject to regulatory oversight by the CFTC, the Applicant is required to ensure that customer positions and monies be separately accounted for and segregated from the positions and monies of the Applicant.  The CFTC regulations are designed to protect customers in the event of insolvency or financial instability of a futures commission merchant through which they clear their futures and futures options business.  The Applicant will receive acknowledgements from any MS&Co. Approved Depository holding a Permitted Client’s positions and monies that such positions and monies are to be separately held on behalf of such Permitted Client, with no right of set-off against the Applicant’s obligations or debts;

(21)    all representatives of the Applicant who trade for customers in the U.S. in futures and options on futures, or who solicit customers in the U.S. to trade in futures and options on futures have passed the futures and options proficiency examination (i.e., the National Commodity Futures Examinations (Series 3)) administered by FINRA; and

(22)    transactions in non-US futures contracts (and options thereon) by Permitted Clients of the Applicant shall be subject to Part 30 of the Regulations of the CFTC which provides for certain asset protection standards for customers transacting in non-U.S. futures (and options thereon) to which the Applicant must adhere in its capacity as a futures commission merchant registered with the CFTC.

(C)         Based on the foregoing, the Commission is of the opinion that it would not be prejudicial to the public interest to grant this order;

IT IS ORDERED:

1.            THAT, pursuant to subsection 66(1) of the CFA, the CFA International Dealer Relief is granted, provided that:

(a)          at the time trading activity is engaged in:

(i)            the Applicant is permitted to trade in Futures Contracts in the U.S. and is registered with the CFTC as a futures commission merchant and is a member of the NFA in good standing;

(ii)           the Applicant’s representatives are permitted to trade Futures Contracts in the U.S. and are registered with the CFTC and NFA; and

(iii)          the Applicant has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service substantially in the form attached at Appendix A (the “F2”);

(b)          each client in Manitoba effecting Futures Trades through the Applicant is a Permitted Client and, if using a Non-MS Clearing Broker, such clearing broker/dealer has represented and covenanted that it is or will be appropriately registered or exempt from registration under the CFA;

(c)          the Applicant only executes Futures Trades on the Recognized Exchanges for clients in Manitoba that are Permitted Clients;

(d)          the Applicant provides each client in Manitoba effecting Futures Trades through the Applicant with disclosure upon entering into the agreement by which it establishes an account with the Applicant that includes: 

(i)            a statement that there may be difficulty in enforcing any legal rights against the Applicant or any of its directors, officers or employees because they are resident outside of Canada and all or substantially all of their assets are situated outside of Canada;

(ii)           a statement of the jurisdiction of the Applicant’s head office or principal place of business;

(iii)          a statement that the Applicant is not registered as a dealer under the CFA and, accordingly, the protection available to clients of a futures commission merchant registered under the CFA will not be available to clients of the Applicant;

(iv)         the name and address of the Applicant’s agent for service in Manitoba; and

(v)          a risk disclosure statement providing substantially similar disclosure to the disclosure in Form 13 Risk Disclosure Statement for Futures and Options Under Commodity Futures Act (Manitoba) attached at Appendix B (the “Risk Disclosure Statement”);

(e)          the Applicant notifies The Manitoba Securities Commission of any Regulatory Action after the date of this order in respect of the Applicant by completing and submitting Appendix C within 30 calendar days of the Applicant becoming aware of such action;

(f)           the CFA International Dealer Relief is available to the Applicant so long as the Applicant is not registered in any Canadian jurisdiction; and

(g)          this order will expire five years after the date on which it is granted.

2.            THAT the fee for this order is $650.

BY ORDER OF THE COMMISSION

Appendix A
The F2

Appendix B
Risk Disclosure Statement

Appendix C
Notice of Regulatory Action

1. The firm has entered into a settlement agreement with a financial services regulator, securities or derivatives exchange, SRO or a similar agreement with a financial services regulator, securities or derivatives exchange, SRO or similar organization.

Provide the following information for each settlement agreement:

2. A financial services regulator, securities or derivatives exchange, SRO or similar organization has:

Provide the following information for each action:

3. The firm is aware of an ongoing investigation of which the firm is the subject

Provide the following information for each investigation:

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

This form is to be submitted to the following address:

The Manitoba Securities Commission
500-400 St. Mary Avenue
Winnipeg, Manitoba R3C 4K5
Attention:  Director - Registration and Compliance
Telephone:  (204) 945-2561
Email:  Chris.Besko@gov.mb.ca