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Morgan Stanley Solicits SEC Consent to Enter ETF Market
In a bid to capitalize on the ongoing exchange-traded funds (“ETF”) boom, Morgan Stanley’s (MS - Free Report) asset management unit sought permission from the U.S. Securities and Exchange Commission (“SEC”) last week to launch its first U.S.-listed ETFs.
According to the filing, the company requested permission to launch both active and passive ETFs. While passive ETFs track market indexes, actively managed ETFs allow traders to take advantage of short-term movements by tracking the direction of the market and trade accordingly.
Morgan Stanley’s request comprised two applications filed late on Friday.
Upon the receipt of permission, Morgan Stanley will be in the same league with banks like JPMorgan Chase & Co. (JPM - Free Report) , Legg Mason Inc. and The Goldman Sachs Group, Inc. (GS - Free Report) , which have also given in to the attraction of the burgeoning $3-trillion ETF industry and have been launching new funds as well as buying ETF firms over the last several months.
The major banks have been facing revenue challenges in fixed-income business amid stringent regulations, declining liquidity and maintenance of higher capital against risky assets.
Therefore, banks have been shifting their focus to areas like wealth management and private banking as these offer steady revenues, while new regulations designed to limit riskier activities have hit investment banking and trading businesses harder.
Given the underlying strength in the ETF market, it is a prudent decision for banks to expand in this area. The global ETF industry is still ripe and growing. In 2015, it witnessed record inflows of over $347 billion.
Notably, Morgan Stanley controlled one of the biggest index-providers MSCI (which operates independently now) and backed some of the earliest ETFs through it in the mid-1990s. Those ETFs are currently managed by BlackRock, Inc.
Morgan Stanley’s wealth and investment management businesses held nearly $1.19 trillion in assets under management at the end of 2015.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
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