SecProbe.io

CORRESP
1
filename1.htm

Response Letter

 CONFIDENTIAL TREATMENT OF

CERTAIN DESIGNATED PORTIONS

 OF THIS LETTER HAS
BEEN

 REQUESTED BY MORGAN

 STANLEY.
SUCH CONFIDENTIAL

 PORTIONS HAVE BEEN OMITTED,

 AS INDICATED BY [*] IN THE

 TEXT, AND SUBMITTED TO THE

COMMISSION.

 August 5, 2011

 By U.S. Mail & Facsimile to 202-772-9292

 Mr. Kevin W. Vaughn

 Accounting Branch Chief

 Division of
Corporation Finance

 Securities and Exchange Commission

 100 F Street, N.E.

 Mail Stop 4561

 Washington, DC 20549

Re:
Morgan Stanley

 Form
10-K for the Year Ended December 31, 2010

 Filed February 28, 2011

Form 10-Q for the Quarterly Period Ended March 31, 2011

 Filed May 9, 2011

 File No. 001-11758

Dear Mr. Vaughn:

 Morgan Stanley (the
“Company”) is pleased to respond to your letter of July 8, 2011 concerning its Form 10-K for the Year Ended December 31, 2010 (“2010 Form 10-K”) and the Form 10-Q for the quarterly period ended March 31, 2011
(“First Quarter Form 10-Q”).

 For your convenience, we have restated your comments below.

Form 10-K for Fiscal Year Ended December 31, 2010

 Item 1. Business

 Institutional Securities

 1

 Commodities, page 4

 Comment:

1.
Please address the following regarding your response to prior comment two:

•

 Please confirm that in future filings you will disclose the information you provided related to your market making activities in various types of
commodities and commodity-related assets or instruments, including your revenue streams and the other parties that make markets in the same commodities.

•

 Tell us in greater detail the nature of your other energy-related activities, including crude oil, oil products, natural gas, electric power, emission
credits, coal, liquefied natural gas, and related products. Specify the ownership structures for those activities, and quantify the amounts related to these activities as they are reflected in your financial statements by category of activity.

 Response:

 Beginning with the Form 10-Q for the Quarterly Period Ended June 30, 2011 (“Second Quarter Form 10-Q”), the Company will disclose the information provided in its response letter dated
June 9, 2011 related to its market-making activities in various types of commodities and commodity-related assets or instruments, including revenue streams and the other parties that make markets in the same commodities.

The Company’s other energy related activities include the production, storage and transportation of several commodities, including crude oil, oil
products, natural gas, electric power, emission credits, coal, freight, liquefied natural gas and related products. For example, the Company is an electricity power marketer in the U.S. and owns electricity generating facilities in the U.S. and
Europe.

 The Company conducts its other energy related activities through several subsidiaries, including Morgan Stanley Capital Group Inc.,
and also participates in these activities through investments in certain non-consolidated entities.

 Similar to its market-making activities,
revenue streams are generated by each of these other energy-related activities either individually or in combination with one or more of the other activities as part of an overall portfolio of positions assumed by traders in physical and financial
markets. Revenues are generated through transaction price spreads to existing market levels with market movements on the portfolios of managed market risk. To a lesser extent, there also are revenue streams from service fees, lease fees, and
investment appreciation or depreciation.

 Beginning with the Second Quarter Form 10-Q, the Company also will enhance its disclosure by
including the above descriptions related to its other energy related activities.

 The carrying value of the Company’s investments in
non-consolidated entities and fixed assets that are associated with other energy related activities was approximately $[*] at December 31, 2010. On page 92 of the 2010 Form 10-K, the Company disclosed contractual obligations, which
includes these other energy related activities (see Operating leases—equipment and Purchase obligations within the table).

 2

 Of the $1,887 million in Purchase obligations $[*] relates to the Company’s commodities
business. In Note 13 on page 202 of the 2010 Form 10-K, the Company disclosed that future minimum lease commitments of $981 million are in connection with its commodities business.

 Financial Holding Company

 Scope of Permitted Activities, page 9

Comment:

2.
Refer to your response to prior comment three and provide proposed disclosure to be included in your next Form 10-Q. If true, please confirm that such disclosure will
clearly address the status of your interactions with the Federal Reserve on these matters and the specific activities you plan execute in order to conform to the requirements of the BHC Act including divestment activities. Please quantify the impact
of such activities, and identify the respective timeframes of any divestitures. If you believe the impact of such activities is not material, disclose that fact as well as the status of your interactions with the Federal Reserve.

 Response:

 The Company will provide the following draft disclosure in its Second Quarter Form 10-Q (additional disclosure underlined). [*]

 The BHC Act provides a two-year period from September 21, 2008, the date that the Company became a bank holding company, for the Company to conform its activities to the BHC Act, subject to three
one-year extensions that may be granted by the Federal Reserve upon approval of the Company’s application. The Company has received the first of these extensions with respect to certain activities relating to its real estate and other
funds businesses. Although conformance activities continue with respect to these businesses, the Company is in the process of seeking a second extension, and it is possible that the Company will be required in 2012 to seek Federal Reserve
approval for the third additional year permitted by the BHC Act. The Federal Reserve may grant an extension, one year at a time, if it finds that the extension will not be detrimental to the public interest. Based on the real estate and
other investments and businesses which are required to be sold, there would be no material adverse impact on the Company’s condensed consolidated financial statements.

In addition, the Company is engaged in discussions with the Federal Reserve regarding its commodities activities, as the BHC Act also
grandfathers any “activities related to the trading, sale or investment in commodities and underlying physical properties,” provided that the Company was engaged in “any of such activities as of September 30, 1997 in the United
States” and provided that certain other conditions that are within the Company’s reasonable control are satisfied. If the Federal Reserve were to determine that any of the Company’s commodities activities did not qualify for the BHC
Act grandfather exemption, then the Company would likely be required to divest any such activities that did not otherwise conform to the BHC Act by the end of any extensions of the grace period. At this time the Company does not believe, based on
its interpretation of

 3

applicable law, that any such required divestment would have a material adverse impact on its condensed consolidated financial statements.

Activities Restrictions under the Volcker Rule, page 10

 Comment:

3.
Refer to your response to prior comment four. Please revise your disclosure in future filings to address your plans to dispose of your in-house quantitative proprietary
trading unit, Process Driven Trading, in 2012 in advance of the effectiveness of the Volcker Rule, and the impact of this trading unit on your financial condition, results of operations, and liquidity for each period presented. Additionally, if true
please revise your disclosure in future filings to state that you cannot currently identify the trading desks and other related business units or other activities that might be within the scope of the final regulatory definition of proprietary
trading. Disclose the extent to which you are monitoring regulatory developments related to the Volcker Rule and confirm in your disclosure that when the regulations are final, you will be in a position to complete your review of your relevant
activities and make plans to implement compliance with the Rule.

 Response:

Please see the Company’s response to comment 4 immediately below.

 Item 1A. Risk Factors, page 23

 Comment:

4.
We note from your response to prior comment five that you are reviewing your proprietary trading operations, that the regulations implementing the substantive Volcker
Rule provisions have not been published and that you believe you can not quantify how the Volcker Rule may impact your business. However, it is not clear why you have not disclosed how you define “proprietary trading” or quantified the
revenues generated from your proprietary trading business. Please include a risk factor in future filings that does so. The risk factor should address the fact that the Volker Rule has not yet defined proprietary trading and may be more inclusive or
exclusive than your definition. It should also describe the risks associated with the potential elimination of your proprietary trading business (as you define it) and businesses that, while falling outside of your definition, may qualify as
proprietary trading under the Volcker Rule.

 Response:

The scope of the restriction on “proprietary trading” has yet to be defined by the rulemaking agencies. Without that guidance, the Company
is unable to determine what activities may be prohibited in the future (other than for standalone proprietary trading businesses). The Company will enhance its risk factors disclosure related to the Volcker rule provision, which will include
disclosure related to Process-Driven Trading. The Company notes that there may be a period where there continues to be ambiguity until after the rule is made final and/or the full implications of a final rule can be determined.

 4

 The Company will provide the following draft disclosure in its Second Quarter Form 10-Q (additional
disclosure underlined).

 The financial services industry is subject to extensive regulation, which is undergoing major
changes that will impact our business.

 As a major financial services firm, we are subject to extensive regulation by
U.S. federal and state regulatory agencies and securities exchanges and by regulators and exchanges in each of the major markets where we operate. We also face the risk of investigations and proceedings by governmental and self-regulatory agencies
in all countries in which we conduct our business. Interventions by authorities may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In addition to the monetary consequences, these measures could, for example,
impact our ability to engage in, or impose limitations on, certain of our businesses. The number of these investigations and proceedings, as well as the amount of penalties and fines sought, has increased substantially in recent years with regard to
many firms in the financial services industry, including us. Significant regulatory action against us could materially adversely affect our business, financial condition or results of operations or cause us significant reputational harm, which could
seriously harm our business. The Dodd-Frank Act also provides a bounty to whistleblowers who present the SEC with information related to securities laws violations that leads to a successful enforcement action. As a result of this bounty, we may
face an increased number of investigations by the SEC.

 In response to the financial crisis, legislators and regulators, both
in the U.S. and worldwide, have adopted, or are currently considering enacting, financial market reforms that have resulted and could result in major changes to the way our global operations are regulated. In particular, as a result of the
Dodd-Frank Act, we are subject to significantly revised and expanded regulation and supervision, to new activities limitations, to a systemic risk regime which will impose especially high capital and liquidity requirements, and to comprehensive new
derivatives regulation. Additional restrictions on our activities would result if we were to no longer meet certain capital or management requirements at the financial holding company level. Certain portions of the Dodd-Frank Act were effective
immediately, while other portions will be effective only following extended transition periods, but many of these changes could in the future materially impact the profitability of our businesses, the value of assets we hold, expose us to additional
costs, require changes to business practices or force us to discontinue businesses, could adversely affect our ability to pay dividends, or could require us to raise capital, including in ways that may adversely impact our shareholders or creditors.

 For example, the Volcker Rule provision of the Dodd-Frank Act will have an impact on us, including potentially limiting
various aspects of our business. With respect to the “proprietary trading” prohibition of the Volcker Rule, we have previously announced plans to dispose of our in-house proprietary quantitative trading unit, Process-Driven Trading
(“PDT”), in 2012.

 For the year ended December 31, 2010, PDT did not have a material impact on our
financial condition, results of operations and liquidity. We have also previously exited

 5

other standalone proprietary trading businesses (defined as those businesses that were dedicated solely to investing our capital), and we are continuing to liquidate legacy positions related
to those businesses. Beyond the restriction on standalone proprietary trading businesses, any additional limitations will depend on the details of agency rulemaking, which have not been published. Given the lack of clarity, we are unable to
identify which other parts of our business will or might be defined to be “proprietary trading” or, even if defined as “proprietary trading,” whether we would benefit from a “permitted activity” exception, such as
market-making or hedging. We are closely monitoring regulatory developments related to the Volcker Rule, and when the regulations are final, we will be in a position to complete a review of our relevant activities and make plans to implement
compliance with the Volcker Rule, which will likely not require full conformance until July 2014, subject to extensions.

 Comment:

5.
We note your response to prior comment six. Please expand your risk factor disclosure in future filings to quantify your Monoline exposures and quantify the costs of
your hedging program. Additionally, revise Management’s Discussion and Analysis of Financial Condition and Results of Operations to explain why your hedging program continues to become more costly and difficult to effect.

 Response:

 The Company will expand its risk factor disclosure to quantify its Monoline exposures and hedging costs and revise Management’s Discussion and Analysis of Financial Condition and Results of
Operations to explain why hedging continues to become more costly and difficult to effect. The Company will also modify its Management’s Discussion and Analysis of Financial Condition and Results of Operations to reflect significant
developments in its Monoline exposures.

 The Company will provide the following draft disclosure in its Second Quarter Form 10-Q (additional
disclosure underlined).

 Holding large and concentrated positions may expose us to losses.

Concentration of risk may reduce revenues or result in losses in our market-making, investing, block trading, underwriting and lending
businesses in the event of unfavorable market movements. We commit substantial amounts of capital to these businesses, which often results in