Morgan Stanley, 2020

Financial media has recently turned up its scrutiny of Morgan Stanley's significant FX options business following losses and leadership changes in the unit. Do the firm's other FICC+E businesses warrant as much vigilance?    



From the Great Financial Crisis up until Q3 2019, FX derivatives grew at an average rate of 10% annually. Even before the coronavirus (Covid-19) pandemic became a household term in 2020, four of the five largest U.S. foreign exchange (FX) dealers collectively reduced their FX derivatives portfolios by an unprecedented amount (-US$7.7 trillion, -15% compared to six months earlier). Risk-off measures such as reducing derivatives notional and net exposures and choosing counterparties more selectively, has gone from being a prudent choice to a necessity. 

This study of changes in FX holdings at the largest U.S. banks helps quantify each firm’s relative strength in spot FX, forwards, FX swaps, and OTC FX options. This growth in FX holdings as well as FX revenue changes reveal, in turn, help quantify banks’ appetite for risk and their suitability as a counterparty.

Key questions we address through this study are as follows: 

  • How do changes in Morgan Stanley's FX derivatives portfolios compare to similar-sized peers?
  • What are Morgan Stanley's FX strengths and weaknesses within its wider fixed income, currencies, and commodities (FICC) business?
  • How has Morgan Stanley's market share changed over time for spot FX, outright forwards, FX swaps, and over-the-counter (OTC) FX options? 

Aimed at FX and FICC professionals using Morgan Stanley as a trading counterparty, this report helps understand Morgan Stanley's trajectory in FX and parameters to model various firm-specific risks as well as market opportunities. 


The data for this study originates from the latest bank reports to the Board of Governors of the Federal Reserve System (U.S. Fed, December 2019), as well as from the latest BIS OTC FX surveys (Jun 2019), and Bank of England FX survey (October 2019). When analyzing derivative holdings and FX trading revenue across firms, we concluded that bank holding company data submitted to U.S. banking regulators is more consistent and reliable than either public filings or primary research done by third-party analyst firms.